As the term suggests, these are well-off individuals or syndicate of investors, willing to raise capital for qualified entrepreneurs & start-up businesses in return for an ownership stake (convertible debt or preferred stock). Individual angel investors consolidate together to form larger angel groups or angel networks for sharing expertise and pool investments.
The capital they provide is usually one time injection, followed by ongoing support to carry out business operations because of their extensive experience and in-depth knowledge in a particular industry. In doing so, they will be sharing not only the capital, but also the knowledge and expertise to run the business smoothly. Angel investors are hence satisfied to gain return on the investment, because of their inclusive involvement in the potential business and its daily operations.
Although there are some risks attached with business angel investment as with other financial investments, but it can be both pleasing and rewarding as well, if professional advices are often taken into considerations. There are some proven-steps that should be acknowledged prior to making angel investment in start-up or emerging high-potential businesses. Beginning with highly due diligence and competitive analysis of the market potential, ended with several business proposal revisions and presentations from the entrepreneurs. However, many financial advisors recommend that, “try to find angel investment opportunities next to your home, town, or city.”
- Why angel investment matters?
- Seed-funding injection in start-up businesses of young entrepreneurs.
- Larger capital investment by private investors in contrast to banks.
- No collateral required for personal assets.
- Enrichment of sector knowledge.
- Benefit from expert advice.
- Increased contacts/clientele from investor’s PR.
- Robust discipline due to external scrutiny.
- Flexibility in business agreements because of personal funds in the investment.
- Better success rate due to high involvement of angel investor or angel group.
- Tax reliefs from the government to encourage angel investment opportunities.
Regardless of these advantages, make sure the risk factors are calculated and predicted long before the occurrence of any misfortune event. Pitching the right angels for your growing business is the foundation of investment you are curious about. Knowing what they are looking for, what’s there past record and reputation may also help you pick the right candidate.