What is the term for individuals who provide seed money to start-up companies?

 What is the term for individuals who provide seed money to start-up companies?

An angel investor: what is it?

An angel investor: what is it? Rich private investors, known as "angels," specialize in providing stock in return for small company venture finance. Angel investors utilize their personal net wealth, as opposed to venture capital companies, which employ an investment fund. Angel investors might also be more patient with entrepreneurs than venture capitalists are, and they could be ready to provide smaller sums of money for longer periods of time. But when they reach a point where they can profit—typically via an acquisition or public offering—they want to see an exit plan.

 

Numerous sectors are supported by angel investors. The Center for Venture Research at the University of New Hampshire reports that in 2020, angel-funded companies were at the seed and startup stage for the first time in a long time. $25.3 billion was invested overall in that year, a 6% increase over 2019.2.

 

Angel investors' benefits and drawbacks

Advantages of Private Equity

An angel investor provides funds to your company without requiring repayment since you are exchanging ownership shares for cash. After the startup phase, established enterprises are often the target audience for angel investment. These businesses have showed signs of profitability, but they still need funding to expand or create new products. Angel investors may have a strong incentive to see you succeed by giving you guidance or providing hands-on managerial support since there is money up for grabs.

 

The drawbacks of angel investing

The fact that angel investors usually expect 10% to 50% of your business in return for capital is a significant drawback. This implies that company owners risk losing control of their enterprise if angel investors conclude that they are impeding the firm's growth. It's crucial to consider how much ownership you're prepared to offer an investor when seeking money. If you give too much, you could not end up with the firm in the event that things don't work out, and the angel investor might end up with more ownership than you. As.

 

Angel investment sources

Entrepreneurs often approach angel investors since they are usually affluent people looking for finance. How can one locate angel investors, then? Among the financial sources are:

 

An internet resource called Angel List assists entrepreneurs in locating financiers.

An online network with nearly 279,000 investors is called the Angel Investment Network. Owners of businesses may set up a profile and advertise their company. Angel investors will invest if they are interested.

LinkedIn: You may reach angel investors directly by using business social networks such as LinkedIn.

Local business associations or schools: Find out if they can connect you with an angel investor by contacting local business associations or schools in your region.

Make sure you have your company plan in hand before contacting an angel investor. Prior to making an investment in your firm, they will want to be certain that it has the potential to succeed.

What proportion is desired by angel investors?

An angel investor might anticipate a higher return on investment (ROI) the more capital they provide to your venture. Angel investors' ROI expectations differ depending on the particular investment opportunity. Angel investors often want a 30% return on their investment.3.

 

As part of their exit plan, angel investors must consider ROI expectations. They sell their firm shares at this point in order to recoup their original investment plus any earnings.

 

Remember that venture capitalist money comes with greater expected returns on investment. These corporations want a higher share of the earnings since they are paying much more.

 

1,2 "The Angel Market in 2020: Return of the Seed and Start-up Stage Market for Angels," by the University of New Hampshire Center for Venture Research.

 

"Why You Need an Angel Investor Exit Strategy Before You Invest," 3 Money Morning

 

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