Angel investors

The essentials

An angel investor is a wealthy individual who invests personal money in a new or early-stage business, usually in exchange for an ownership share (equity) or debt that can later be converted into equity. Angel investors often step in when the business is too young or too risky for banks and too small for venture capital funds.

Besides money, angels frequently offer experience, advice, industry contacts and credibility. Many angels are successful entrepreneurs or senior professionals who want to support new ventures. Some invest together through angel networks to share research and risk.

Key points

Features of angel investment:

• Investment of personal funds, not money pooled from institutions.
• Focus on the seed and early stages of a business.
• Relatively small amounts compared with venture capital.
• High risk: many early ventures fail, so angels expect high returns from the few that succeed.
• Return comes mainly when the business grows and the angel sells the stake later.
• Often active involvement as mentor or adviser, but usually less formal control than venture capitalists.
• Decisions can be quicker and terms more flexible because the investor decides personally.

Exam tips

• Personal money + early stage + mentoring → angel investor.
• Pooled funds + professional fund managers + larger amounts → venture capital.

Common mistakes

• Thinking angel investors give loans like banks with fixed interest; they usually seek equity.
• Assuming angel investment is free money; the entrepreneur gives up part of ownership.