Angel Investors

What are Angel Investors?

Definition: Angel investors, also called private investors, are wealthy individuals who infuse a startup company or an entrepreneur with cash or capital in exchange for ownership or convertible debt because they believe in the company and think it will succeed. Angels are different than venture capitalist because they fund the endeavors personally and usually want to entrepreneur and business to succeed for more reasons than just profits.

What Does Angel Investors Mean?


Angel investors provide more favorable terms compared to other lenders, since they usually invest in the entrepreneur starting the business rather than the viability of the business.1 Angel investors are focused on helping startups take their first steps, rather than the possible profit they may get from the business. Essentially, angel investors are the opposite of venture capitalists.


What Defines a Business Angel?

Angel investors are easily distinguishable from other types of investors, such as venture capitalists, through several factors:

  • They invest their own money into the project, less than would be invested by a venture capitalist
  • They make their own decisions concerning investments
  • They invest according to the viability of the project, with expectations of future gains
  • Their main objective is to receive a return on their investment
  • There are different types of business angels and their relationship to your business.
  • They can be affiliated; which can include suppliers, customers, or even competitors.
  • They can also be nonaffiliated; which means they are individuals without a previous connection with your company.

Business angels can be an excellent way for a new company to gain ground quickly and step into a new stage of growth. By providing capital and guidance, the investment can have a substantial impact on the business.

Angel investors essentially provide a bridge between a fledgling business concept and a company that is developed enough to receive funds from a venture capitalist.

Advantages and Disadvantages of Angel Investors for Business Owners



Typical Sources of Angel Investors



Investment Profile




Angel investments bear extremely high risks and are usually subject to dilution from future investment rounds. As such, they require a very high return on investment. Because a large percentage of angel investments are lost completely when early stage companies fail, professional angel investors seek investments that have the potential to return at least ten or more times their original investment within 5 years, through a defined exit strategy, such as plans for an initial public offering or an acquisition.

Current ‘best practices’ suggest that angels might do better setting their sights even higher, looking for companies that will have at least the potential to provide a 20x-30x return over a five- to seven-year holding period. After taking into account the need to cover failed investments and the multi-year holding time for even the successful ones, however, the actual effective internal rate of return for a typical successful portfolio of angel investments is, in reality, typically as ‘low’ as 20–30%.



Define Angel Investors: Angel investor means a person who contributes money to a company, usually a startup, in hopes that the company will grow and their original investment will increase dramatically.

  • An angel investor is usually a high net worth individual who funds startups at the early stages, often with their own money.