Many have heard the term “angel investor”, but it is often misunderstood in its definition. This type of investor fills a marked void in financing options for startup businesses and ventures. How exactly does the angel investor do this?
The Basics of Angel Investing
When a business is in the position of starting brand new, it’s typically going to face challenges in financing that are not faced by the already-established business. This is because of a combination of factors. These include lack of income, lack of guarantees or proofs of success, lack of identity, and a few other factors.
Enter the angel investor. Angel investors, also frequently referred to as angel funders or informal investors, can come in any shape or form. They may come in the form of a business or even a private citizen. Regardless, the role they play is one of crucial advocacy for the startup business. This advocacy can come via funding or through any number of other aids and resources. In the end, the startup receives the exact resources it needs from this angel funder and is then able to succeed and grow.
Motivations
At this crucial, beginning time, all fledgling businesses are fragile, and quite unlikely to succeed. In fact, as discussed by Forbes contributor Richard Harroch, only around one out of every ten startups successfully lives past these beginning phases. So then, with so much risk and propensity for failure in this area, why would any investor want to lend their money or resources? The truth is that should the startup business be successful, the investor will then be in a position for gain.
These gains can come in any number of forms. Most of them however are predetermined and agreed to at the original onset of the said investment. In many cases, the investor will then reap a certain percentage of ownership or stock in the business. In other cases, a predetermined percentage of company profits will be directed to the investor in exchange for their support at the very beginning. Yet another motivation can simply lie in personal interests of an investor. In addition, a combination of these and other stipulations may also motivate the angel funder.
Angel Investing in Real Life
Examples of angel investing can be seen all around us. Big names in investing such as Ron Conway and Dave McClure have funded countless startups. The popular television show, Shark Tank focuses on angel investors being courted by entrepreneurs and seedling businesses. In addition, there are increasing numbers of crowdfunding websites becoming available to the public. Within these sites, business startups and potential investors come together in a single forum, often resulting in plenty of funding and deals being arranged. With such recent availability in investor-startup matching services, anyone from the aspiring teenager to the esteemed group of experts can look to achieve funding arrangements.
Related Resource: Business Plan
These are the basics of angel investing as well as the function of this particular type of investor. For those more interested in such investment options or business startup assistance, popular websites such as EquityNet.com, GoFundMe,com, and Kickstarter.com can provide valuable information and plenty of opportunities for angel investment matchups. In conclusion, if you are considering acting as or conducting business with an angel investor, it is recommended that you always carefully consider terms and conditions before officially signing into any deal.
