An
angel investor or angel (also known as a business angel
or informal investor) is an affluent individual who provides
capital for a business start-up, usually in exchange for
convertible debt or ownership equity. A small but increasing
number of angel investors organize themselves into angel
groups or angel networks to share research and pool their
investment capital.
Angel
investors are individuals who invest in businesses looking
for a higher return than they would see from more traditional
investments. Many are successful entrepreneurs and business
people who want to help other entrepreneurs get their business
off the ground. Usually they are the bridge from the self-funded
stage of the business to the point that the business needs
the level of funding that a venture capitalist would offer.
Funding estimates vary, but usually range from $50,000 to
$2 million.
Make
no mistake: all angels invest for just one primary reason
- to increase their wealth. Their money is not free, and
they will expect a sizable return in the long run. Many
will be willing to wait four or five years to get their
money back, but by then they will expect a return of two
or three times their original investment.
Even
if it's not clear to you at the beginning, an angel will
always be looking for an exit strategy, and it's your job
to provide one. Angel capital is flexible but expensive.
Even though angels will give you several years to generate
a return, they will expect to be well compensated for their
patience. Rates of return north of 30% compounded per year
are not uncommon targets.
