Angel investing (AI) is an investment opportunity to invest in a company’s growth stage. This type of investment usually comes with high risk and high reward potentials. It also means that there will be no liquidity for your shares unless the investment has been made publically available to investors outside of just angels.
Sources of AI
Angel investors are usually people that have a great deal of investment knowledge and experience. Alternatively, angels can also be very successful entrepreneurs themselves. Who know how to identify opportunities in emerging markets or technologies early on. Some examples include investing in Uber during the early stages when it was still called “UberCab” or Facebook before its IPO.
How Much Do Angel Investors Typically Invest?
Angel investors invest a small amount of money, usually a few thousand dollars or less. The amount invested varies depending on the proposer, who is the owner of the business.
Angel Investors typically invest in emerging markets that can disrupt existing industries and create new growth opportunities. They are more risk-tolerant than other investors because they can afford to be very patient with their investment until it is ready for expansion.
What do angel investors get for their investment?
Angel investors are typically looking for big returns on their investments, so they don’t want to invest in anything that’s less risky than the startup. They do not receive dividends or gain an equity stake unless publicly traded, and there is a secondary market for trading shares.
Additionally, angel investors may be entitled to earn certain rights such as seats on the board of directors and a right to participate in future funding rounds.
Angel investors can also benefit from receiving equity stakes or debt financing through convertible notes instead of cash investments. These forms have less dilution than common stock, so the investor does not take ownership over time. However, it helps minimize their losses if the business fails. This can also allow them to gain more stake in its success and have a more straightforward exit plan when making money.
How Does the Investing Process Work?
The beginning of the angel investing process is to seek out potential investments. This is done through referrals from friends, family, and colleagues. Alternatively, you can read about opportunities in publications like The Next Web or AngelList Newsletter.
According to experts at Money Morning, attending conferences for entrepreneurs where you can meet with founders face-to-face or by reaching out directly to the company who has approached an investor.
When you find a company that interests you, the next step is to reach out and learn more about their business model and how they plan on monetizing it to determine if this investment will be worth your time or not. You can also hire an investor relations firm like Beanstalk Ventures who takes care of all the details of setting up meetings with the company.
When you finally meet face-to-face, you can get a better idea of what they are trying to achieve and how their business model works to determine if it would be viable or not. You can discuss potential risks involved with investing along with any concerns about their business model, the team behind it, and how they plan to monetize.
Lastly, if you are interested in investing. You can determine what type of investment (cash or equity) would be most beneficial for both parties based on each business’s needs. This is also where the agreement will be negotiated to include terms like how much the investor is willing to contribute and their rights if they provide funding.