Who are angel investors?
Angel investors are affluent individuals who use their personal funds to invest in startups in return for equity shares or convertible debt. They are often former entrepreneurs or retired business professionals with high net worth, a strong network, and extensive experience.
Which types of startups do angel investors typically invest in?
Angel investors typically invest in seed or early-stage startups with small check sizes to support founders in developing their businesses and products. They often target startups with high growth and profitability potential. Startups in industries that angel investors are passionate about are more likely to attract their investment. A strong founding team is another important factor that angel investors consider when deciding whether to invest in a startup.
What are the advantages of seeking investment from angel investors?
- Faster Approval Speed: Due to their ability to make independent decisions, conduct minimal due diligence, and follow simpler legal procedures, angel investors can approve investments more quickly.
- Flexible Terms: Angel investors may have more flexible investment terms when compared to venture capital firms.
- Expert Mentorship: Many angel investors are former entrepreneurs or business executives who can share their experience and expertise with founders to help them navigate challenges.
- Valuable Network: With their personal network, angel investors can help startups engage with potential customers, partners, or future investors.
What are the disadvantages of seeking investment from angel investors?
- Small Funding Amount: The funding amounts provided by angel investors are usually smaller than those provided by venture capital firms. If a startup requires significant capital or wants to scale quickly, it may face constraints.
- Limited Resources: Although angel investors can share their resources and networks with startup founders, their support may not be as extensive as what venture capital firms provide.
- Diluted Equity: If angel investors request equity shares in the startup in exchange for their investment, the founders will need to give up some equity, which will result in a loss of some ownership and control over the company.
How should you choose an angel investor?
Finding the right angel investor is crucial for your startup's success. This ensures that the angel investor will support your long-term goals and provide the right guidance and resources to help you grow your startup. Here are some factors that you should consider when choosing an angel investor:
- Can you work well and be happy with them?
- Do they have a successful investment track record?
- Can they provide references or testimonials from other startup founders for you to review?
- Are they reputable in the startup ecosystem?
- Are they currently investing in any of your competitors?
- What are their investment terms?
- What would be their level of involvement in business decision-making and operations?
- Can they introduce you to key contacts for potential customers, business partnerships, and future investors?
- Do they have the relevant industry experience and expertise to provide you with advice?
What are some examples of startups that have taken angel investment?
(The list of their angel investors is not exhaustive.)
- Google – Andy Bechtolsheim
- Amazon – Tom Alberg, Eric Dillon, and Nick Hanauer
- Facebook – Peter Thiel
- Uber – Troy Carter
- Airbnb – Paul Graham
- Pinterest – Brian Cohen
- Square – Biz Stone
- Zoom – Dan Scheinman
- Box – Mark Cuban
- Asana – Peter Thiel