Originally used to describe show-saving Broadway investors, angel Investors provide financial backing or support for startup businesses. Unlike venture capitalists, they use their own money – either in the form of a one-off investment to help get a business up and running, or as ongoing, regular support to help a company through a difficult cash-flow period.
Because of the high risk involved in investing in new and untried businesses, angel investors usually ask for – and receive – a much higher rate of return on their investment than they would otherwise get through more conventional investment channels. For this reason, angel investing has grown rapidly in popularity in recent years.
What Kind of Person is an Angel Investor?
If you’re going to be accepting money from an angel investor, thus effectively handing over a share of your business in return, you need to know the kind of person you’re likely to be dealing with. While no two people are the same, there are certain characteristics that most angel investors seem to have in common:
* They are “regular” people – Contrary to popular belief, most of them are not millionaires. They typically earn, on average, around $90 000 a year, and have a net worth of approximately $750,00. They are often self-employed, and invest an average of $37,000 per venture. They are about 47 years old, and have a college degree.
* They are successful (sometimes retired) entrepreneurs – Knowing what it’s like to start out in business, they are passionate about giving other startups a helping hand. They typically invest in a type of business with which they are familiar, and they usually stick to a geographical area within 50 miles of their own homes or businesses.
* They are “hands-on” – angel investors are not afraid to roll up their sleeves and help out where necessary, both to assist the startup business and protect their investment. They will challenge and push the entrepreneur, but won’t take-over.
* They are risk-takers – The overwhelming majority of early stage companies fail, and angel investors lose their investments completely. Despite this, they enjoy the thrill of the risk, often choosing to take a chance on a less experienced, but promising entrepreneur.
Angels are constantly evolving and getting more sophisticated. Many of them band together to form formal angel groups that start to look a little bit like VC funds. Research an angel or an angel group before you approach them; you might have to adjust your pitch slightly for different angels.
If you’re an entrepreneur wanting to verify that a potential angel investor in your business is accredited, visit VerifyInvestor.com.
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