You’ve probably heard the term “angel investor” before but you may be fuzzy on what exactly they are. Do they have wings? Do they wear halos? The answer is no (at least not that we know of). So then, what are angel investors and why do startups need them?
An angel investor is an individual who provides capital for a business startup, usually in exchange for convertible debt or ownership equity. Angel investors are often individuals who have spare cash available and are looking to invest in high-growth businesses. They usually invest their own money as opposed to institutional investors, such as venture capitalists.
Angel investors typically invest smaller amounts of money than venture capitalists. For example, an angel investor might invest $25,000 in a startup while venture capitalists might invest $5 million. In addition to providing financial support, angel investors also often provide mentorship and advice to startup founders. It's hard to say exactly how much an Angel investor might invest but typically Angel Investors write checks between $10,000 and $200,000.
There are a few reasons why startups need angel investors. First and foremost, angel investors provide much-needed capital for businesses that are just starting out. This allows startups to get off the ground and grow without having to take on large amounts of debt.
In addition to providing financial support, angel investors also often provide mentorship and advice to startup founders. They can offer helpful insights based on their own experiences growing businesses from the ground up. This can be invaluable for young entrepreneurs who might not know where to start or what mistakes to avoid.
Finally, having an angel investor onboard can increase a startup’s chances of success when seeking additional funding from venture capitalists down the road. This is because having an angel investor shows that there is already some skin in the game, so to speak. It signals to VCs that the business is worth investing in and that it has potential for growth.
So there you have it! Angel investors are individuals who provide capital for business startups in exchange for equity or debt ownership. They usually invest their own money as opposed to institutional investors and often provide mentorship and advice to startup founders in addition to financial support. Startups need angel investors because they provide much-needed capital, mentorship, and increased credibility when seeking additional funding down the road.