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UL0007 – Angel Investing

An angel investor is someone who provides financial backing for small startups. As Venture Capital (VC) firms usually look to invest in the millions of dollars range, the angels are looked upon to back entrepreneurs at an earlier round of funding, after the FFF (Family, Friends and Fools). They usually provide funding from fifty to the hundreds of thousands of dollars.

Usually the capital can be provided in a one-time injection or ongoing support to carry the company through difficult times. Further to the cash they will also provide support like mentoring and network support to help the business succeed. They are keener in making the business grow and succeed, than to profit from an early exit, which make them different from venture capitalists, who are looking to recover their money faster.

Angels usually invest their own money, unlike venture capitalists who managed pooled funds of other people’s money. With this, they look into taking bigger stakes in the company, to secure their investments. As some may have business background as well, they will work together and mentor the company to ensure the business success.

Investments made by Angels are extremely risky, as the company is new and they may not have developed fully at that stage of investment. A large percentage of angel investments are lost when early startups fail, which is why they also look to get a higher return on investments, so as to be able to even out in their investing business.

Why would you look for an Angel Investor?

  • Looking for early stage funding (50,000-1 Million)
  • Looking for people with business experience to guide and help you along the way.
  • Willing to give away a reasonable amount of equity and control of the business.
  • Open to changes in the business strategy and how to run the business.

It is useful for angel investors to take a keen interest in the start-up. The entrepreneur will have to understand that after an external investor comes in, he/she may not be in complete control of the company anymore but the guidance from the investors can be very useful in guiding the company in the right direction.

Thus, it is very important to find an Angel Investor who can help the company and who has time, contacts, knowledge and commitment to help the company succeed. It is also crucial that both parties are able to work with each other to build a relationship that will carry the business forward.

It is very important to understand the types of funding that is available for startups. Entrepreneurs need to know which channel of financing they should approach and at what stage of their startup. In order not to get taken advantage of by investors and also to get a good deal from the investment made, they should also understand how investment deals are structured.

Don’t be ignorant – you must know how to properly structure the investment.

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