The terms angel investor and venture capitalist are often used interchangeably. However, there is a distinct difference between the two. While venture capitalists invest in startups that have the potential to grow into big businesses, angel investors put their money into companies that are either not in business or have just started showing signs of success.
According to a report by AngelList, there are now over 7,000 active angel investors on AngelList alone.
These investors invest their own money into early-stage startups and often mentor them as well. In 2017, $28.5 billion was invested by angels into over 3,000 startups.
The report also stated that the average angel investment was $2.6 million and that the number of angels increased by 23% in 2017.
Angel investors often have a lot of experience in business and entrepreneurship and are usually very well-connected in their respective industries.
While they don’t offer seed funding to startups, they do provide them with advice and mentorship to help them grow their businesses further. They also invest money into startups only after doing a lot of research on them and understanding the business model as well as its potential for growth.
Angel investors are always looking for innovative ideas that can make it big in the market within a short period of time. This is why startups should try to make their business plans as detailed as possible. They should also be able to convince the investors about their business model and how they plan to use the money they raise.
Angel investors are also interested in startups that have a high potential for scaling up. It is important to note that the startup should be able to show some form of traction, which will help them convince the investors about their business model. If the investor believes in the business model and can see its potential for growth, they will invest money into it.
Angel investors are more willing to invest in startups that do not require a lot of initial capital. They prefer businesses that are not capital intensive and require a low amount of money for initial operations. They are also more willing to invest in businesses that have an attractive valuation or don’t require a lot of money to grow further.
Angel investors typically look for a rate of return between 10% and 20%. This means that if they invest $1 million into a startup, they would want an ROI of $10-$20 million from it. However, if they do not see any growth in the business after three years, they will consider pulling out their investment from it. This is why startups should make sure that they can show early signs of success within two years or else the angel investor might pull out their investment from them.
Where Can You Find Angel Investors?
Angel investors are found all over the world. They have offices in many cities across the globe and they often attend events and conferences to find potential startups that they can invest in.
They also visit online platforms such as AngelList to find potential startups that they can invest in. It is important for startups to pitch their business ideas on these platforms so that the angel investors can find them and offer them investment opportunities.
There are also a number of angel networks that help connect investors with startups. These networks help both parties benefit from each other by providing them with advice, funding, and other support services. Angel investors who are part of these networks usually provide assistance to startups by providing mentorship, advice, and connections as well as access to funding opportunities and events. They also provide entrepreneurs with capital for their businesses.
Some of the best known angel networks include:
- Crunchbase, which is a database of startups and other companies
- AngelList, which is a platform for investors and startups to connect with each other
- EquityNet, which helps investors find suitable startups to invest in
- Founder Institute, which provides support services to entrepreneurs and early-stage startups by helping them grow their businesses further. It also provides them with mentorship and advice. The organization also offers free business education courses to help entrepreneurs succeed in their ventures.
About the Author
I am the Founder of Cudy Technologies (www.cudy.co), a full-stack EdTech startup helping teachers and students teach and learn better. I am also a mentor and angel investor in other Startups of my other interests (Proptech, Fintech, HRtech, Ride-hailing, C2C marketplaces and SaaS). You can also find me on Cudy for early-stage Startup Founder mentorship and advice.
You can connect with me on Linkedin (https://www.linkedin.com/in/alexanderlhk) and let me know that you are a reader of my Medium posts in your invitation message.