Angel investors, alongside venture capitalists, are typically good sources of finance for start-ups. Many start-up businesses are considered too risky for funding (in the form of a loan) from banks. An angel investor is usually willing to take a risk in firms with high growth potential, as the investor can generate large financial rewards, from future profits the company generates, or by selling his stake in the business (at a much higher price than he paid for it.)
Definition: What is an Angel Investor?
An angel investor is a high net worth individual who is willing to provide capital for new, high-growth businesses, in return for equity in the firm. The TV show Dragon’s Den is a good example of angel investors. As well as providing funding, an angel investor may also advise the business, and use his/her relevant contacts to further the firm’s aims.
Angel investors may join together (to form a network), and pool their capital and resources. These types of investors tend to invest in several start-ups, giving them a portfolio of investments. As most new businesses fail, angel investors invest in many companies so that they can still turn a profit even if just 1 out of 10 companies (in their portfolio) is successful. A study, conducted in 2009, found that there were around 4,000- 6,000 angel investors in the UK, providing an average of £42,000 (approximately $60,000) per deal.
New Sources of Finance
In recent years, many new crowd funding sites, such as Crowd Cube, have sprung up, giving businesses an alternative to conventional sources of finance. To some extent, the people providing funding for
start-ups via these crowd funding sites are angel investors. According to Crowd Cube, they have raised nearly $250 million via their online platform. You can signup here.
For more information on finding an angel investor, or becoming one, you should visit Angel Den’s website.