Angel investors

Definition

An angel investor is an individual who provides capital to start-ups or small businesses in exchange for equity.

What is an angel investor?

These investors are typically entrepreneurs or retired business owners who are interested in investing in early-stage businesses with high growth potential, which may not be eligible for a traditional loan

Many angel investors are not only sources of funding but also bring valuable industry experience, expertise, and networks to the businesses they invest in. 

Angel investing is considered high-risk, high-reward. Angel investors understand that a significant portion of their investments may not return, but they are willing to take the risk in a potentially successful startup.

Many angel investments are made in businesses within the investor’s local community or industry of expertise. Personal connections and local networks often play a significant role in angel investing.

The amount invested by angel investors can vary widely, ranging from a few thousand dollars to several million, depending on the investor’s wealth and the specific opportunity.

Example of an angel investor

1. InnovateTech’s funding needs:
   • InnovateTech, a technology startup, has developed a groundbreaking software application but requires additional funding to scale its operations.
2. Angel investor’s interest:
   • Sarah, an experienced entrepreneur and investor, is interested in InnovateTech’s potential and believes in the vision of the founders. She decides to become an angel investor and offers to invest $100,000 in exchange for a 10% equity stake in the company.
3. Equity ownership:
   • In return for her investment, Sarah now owns a 10% equity stake in InnovateTech. This means she will share in the company’s success and potentially benefit from any future profits or a successful exit, such as a merger or acquisition.