Wealthy private investors known as "angels" specialize in funding startup companies in exchange for stock. Angel investors use their net wealth instead of venture capital firms, which employ an investment fund. Angel investors may also be more tolerant of entrepreneurs and willing to give lesser sums of money over a more extended period than venture capitalists. However, they expect to see an exit strategy at some point, often in the form of a public offering or an acquisition, so that they can keep their earnings.
Having an angel investor means your company won't have to pay back the money because you're exchanging ownership shares for cash. Angel funding is typically only given to companies that have passed the startup stage. These businesses have shown signs of profitability but still, require funding to expand or develop new products. An angel may be very motivated to support your success through mentorship or by providing specific management assistance because their financial interests are at stake.
Several people opt to be Angel investors to invest in the business and accomplish their goals. Individuals such as David Wu have taken the journey of being angel investors. David began investing as an angel investor in 2008 and joined the Band of Angels, the oldest startup fundraising group in Silicon Valley. He later rose to the position of Internet Committee Chair on the group's transaction screening committee and has since made over 50 investments.
David joined Maveron as a partner in 2012 to assist in finding new consumer tech investments, particularly those in the nexus of entertainment, social, and gaming. Maveron invests in consumer-only firms. David oversaw Maveron's investments in WaveXR, Illumix, Booster, Modern Fertility (bought by Ro), August Home (purchased by Assa Abloy), inbox (acquired by BIC), and Eargo (NASDAQ: EAR) and sat on the boards of each organization.
Reasons to Employ Angel Investors
Consider the following benefits of working with an angel investor in addition to the apparent money benefit:
- Less documentation
There are fewer hurdles to jump through when investing in angels. As the procedure is less formal, it may be quicker and less rigorous than other financing sources. Negotiating and signing the contract in such a transaction takes less time than it would with a bank loan.
- Debt-Free
Unlike lenders, angel investors spend their money instead of expecting a return. Therefore, the business is free of debt. It lets the founder control the company's operations and decision-making while maintaining majority ownership.
- Mentorship
Angel investors frequently have the skills and assets necessary for a firm to thrive. They can offer guidance on hiring staff, luring clients, boosting sales, and choosing marketing tactics.
Angel Investors vs. Venture Capitalists
Startups and enterprises receive funding from venture capitalists and angel investors. However, there are differences in financing sources, sums, the timing of investments, and interests. Typically, private individuals or organizations use their money to invest in startups as angel investors. Institutional investors, and venture capitalists, borrow money from banks and pension funds.
As such, angels usually invest smaller amounts than venture capitalists. Seed funders also tend to enter earlier in the startup process and are more likely to fund an entrepreneur's idea before it has been profitable. Meanwhile, venture capitalists invest at a later stage when there is already some success, with a proven track record and revenue model.
Angel investors generally believe in the founders or the potential of a startup's product or service instead of its immediate financial value. It is why angels provide mentorship and typically require equity shares more than investment returns. Venture capitalists tend to be more focused on the financial aspects of a deal, looking for high returns on their investments, and may require more control over decision-making.
No comments yet