Definition: Angel investors, also called private investors, are wealthy individuals who infuse a startup company or an entrepreneur with cash or capital in exchange for ownership or convertible debt because they believe in the company and think it will succeed. Angels are different than venture capitalist because they fund the endeavors personally and usually want to entrepreneur and business to succeed for more reasons than just profits.
What Does Angel Investors Mean?
What is the definition of angel investors? These investors participate in the funding of a startup company because they believe in the business idea or in the person who invented it and they offer a one-time investment to get the business moving. Alternatively, they may fund a business on an ongoing basis, especially if there are hardships at the early stages.
Besides funding the business in significantly better terms than a bank or other lender, an angel investor offers expertise and a valuable network of contacts, seeking to see the business propel. Angel investors should be accredited by the Securities Exchange Commission (SEC) and realize an annual income of $200,000, on top of a minimum net worth of $1 million. In this context, angel investors may be individual accredited investors or an investment fund, business, etc.
Let’s look at an example.
Example
Alexander owns an investment banking firm, and he is interested in investing in his friend’s Jonathan startup technology company. He can provide $500,000 as initial funding, and he will acquire a 25% stake in the company. Unlike venture capitalists, who invest and manage funds pooled for different resources, Alexander is an angel investor who believes in the business idea and invests his own funds. Also, he is a member of an angel investor group, which consists of similar entrepreneurs who share the same interests and share investment ideas and relevant research.
Jonathan is excited that Alexander will participate in the company, and he doesn’t mind giving up 25% of the equity. Alexander has a great network from which he can pool potential customers, and he is also an experienced entrepreneur who knows how to turn things around, especially during tough financial times. Before contacting Alexander, Jonathan had sought to raise debt from a local bank, but the interest rates were high, and the bank’s credit line policy was quite strict. So, he thinks that turning to angel investing will help his business propel and generate revenue.
Summary Definition
Define Angel Investors: Angel investor means a person who contributes money to a company, usually a startup, in hopes that the company will grow and their original investment will increase dramatically.
