In this article , you will learn what is the meaning of angel investor. The term "angel" came from the Broadway theater, when wealthy individuals gave money to propel theatrical productions. The term "angel investor" was first used by the University of New Hampshire's William Wetzel, founder of the Center for Venture Research.
What is the Meaning of Angel Investor?
An angel investor (also known as a private investor, seed investor or angel funder) is a high-net-worth individual who provides financial backing for small startups or entrepreneurs, typically in exchange for ownership equity in the company. Often, are angel investors found among an entrepreneur's family and friends. The funds that angel investors provide may be a one-time investment to help the business get off the ground or an ongoing injection to support and carry the company through its difficult early stages.
They invest their own money in a small business in exchange for a minority stake (usually between 10% and 25%). Angel investors tend to be entrepreneurs or people with extensive experience in the business world.
However, angel investment is about more than just money. Angels offer mentoring and support, and businesses that receive investment will generally benefit from the investor's time, skills, contacts and business knowledge.
Angel investors take a hands-on approach. They will spend lots of time with the entrepreneur and help to push the business forward. It's crucial that the angel and the entrepreneur have a strong relationship, as they'll typically spend at least five years working together closely.
Who Can Be an Angel Investor?
Angel investors are normally individuals who have gained "accredited investor" status but this isn't a prerequisite. The Securities and Exchange Commission (SEC) defines an "accredited investor" as one with a net worth of $1M in assets or more (excluding personal residences), or having earned $200k in income for the previous two years, or having a combined income of $300k for married couples. Conversely, being an accredited investor is not synonymous with being an angel investor.
Essentially these individuals both have the finances and desire to provide funding for startups. This is welcomed by cash-hungry startups who find angel investors to be far more appealing than other, more predatory, forms of funding.
What are the Sources of Funding?
Angel investors typically use their own money, unlike venture capitalists who take care of pooled money from many other investors and place them in a strategically managed fund.
Though angel investors usually represent individuals, the entity that actually provides the funds may be a limited liability company (LLC), a business, a trust or an investment fund, among many other kinds of vehicles.
Bottom Line
Angel investing has grown over the past few decades as the lure of profitability has allowed it to become a primary source of funding for many startups. This, in turn, has fostered innovation which translates into economic growth. This article is about what is the meaning of angel investor.
