An "angel investor" is an individual or a group of individuals who provide funds in the early stages of a company. Startups are the usual recipients of angel investments, with these investors typically offering capital in exchange for equity or convertible debt.
Typically, the angel investor receives shares or a convertible note in return. These benevolent financiers are often experienced entrepreneurs or affluent individuals who seek to nurture promising business ventures and derive capital from them. Angel investors play a crucial role in the entrepreneurial ecosystem as they bridge the funding gap that many startups face before they can attract larger investments from venture capital firms (VCs).
An essential achor in the startup ecosystem
Angel investors typically take a hands-on approach and offer not only capital but also mentoring, industry contacts, and valuable advice to the startups they support. They usually get involved in the early phases of the company, often during the seed or pre-seed stage, where the business idea is still taking shape and requires essential resources for growth. Angel investments can range from a few thousand dollars to several million, depending on the investor's capacity and the startup's needs.
For startups, angel investors provide vital capital and expertise that can help them navigate the challenges of early growth. However, this financial lifeline comes at the cost of equity since angel investors typically acquire a stake in the company. Startups must carefully examine the terms of the investment to ensure alignment with their long-term goals. Conversely, angel investors face the risk of losing their capital and invested time if the venture fails.