As per analysis in US, the total amount of angel investments increased by a 6% margin from 2019 to 2020 and reached a whopping $25 billion. About 60,000+ entrepreneurs founded their dream angel investor in 2020, also 1.2% more than the previous year. Within the past few years, finding funds to raise for a startup has become crucial in financing startups.
One of the most popular ways to finance your startup is through an angel investor. They are not like banks or any ventures. They are individuals looking for businesses to invest their time and money in. The investment opportunities are plentiful as angel investors are great consultants, and they offer quick ways to get your startup connected with the world.
But, who are these investors?
Who is an Angel Investor?
An angel investor is the one who is most often an entrepreneur, CEO, or director. They offer funds for startups due to the high rate of return they expect. These investors are everywhere, ready to invest in the correct pitch and business. If a company can explain its idea and the products or services, the angel will invest in that sector. The investors are also looking for good teams with skilled people they can support in their money to get profitable outcomes.
As per the SBA (small business administration), the average angel investment is around $300,000. This amount is usually misinterpreted because of significant angel investments, as it can go to even a $1 million. Suppose you’re thinking about targeting an individual angel investor. In that case, they can give you an amount somewhere between $10k to $200k, and it can go up even $300k depending on the people involved in the transaction.
What makes a good Angel?
Startups need to ensure that the angel investor they want will be the right fit for them. An angel investor should be the one that brings value to the overall vision of the company. Startup look for investors with solid connections that can help their company grow further. Here are some of the factors that startup founders should consider while thinking about an angel investor:
Industry experience of the angel investor
An angel investor should have a solid industry experience within the industry that you’re working. For example, if your startup is about technology, you should look for an angel investor with a previous successful history of dealing with technology-related issues.
Experience in investing in startups
This will be the most critical factor if you have never gone to an angel investor before. An angel investor should have the experience of advising startups like yours and ensuring they are in the best possible place to get their targeted results and compete with other companies.
Angel investors should be wealthy
Yes! There is a reason for it. Your angel investor should cover it quickly whenever your startup needs an amount. You need someone who can invest money without any hesitation whenever your startup requires it in the future as well.
Angel investors should be a good advisor
For startups, it is tough to raise funds and ensure that business is doing good. An angel investor who is good at advising your company will help you get other opportunities to raise funds and get other investors on board that can also guide your company with their experiences.
Solid industry connections
A good angel investor for a startup is the one who helps to get your doors knocked on by real industry people who will be potential connections to your new customer, financer, or even a partner. They are primarily other angel investors who look for a reference before investing.
Benefits of Angel Investment
In comparison with other investment opportunities, angel investment has many advantages:
Financial payoff
Angel fund is supposed to be given in the complete form, which offers an excellent opportunity for other companies to increase. In 2007, Microsoft took the equity of $240 million from Facebook and gave the amount straight away while earning a 1.6% stake in Facebook. Today, they enjoy their investment growth, which was $1 billion.
Satisfaction from giving back
Angel investment is not about philanthropy; however, entrepreneurs keep giving back to society through angel investment. The investors think that they have earned everything from the world, and they need to help others and bring new concepts to the market.
The transition from angel to operator
Angel investors very often don’t take up the board seat or come near to controlling the decision-making in the company. In 2002, the PayPal CEO funded $500,000 in Facebook and earned 10% worth of Facebook’s shares. The investment is currently worth around $1.2 billion. But Thiel started serving as the board member of Facebook and brought all the experience he learned as the CEO of PayPal.
Tools for Angels
Angel investors often say that they find the right fit companies through recommendations from other investors. The entrepreneurs also tend to select companies through platforms that are legit and best for finding startups; here is one of them:
Angelist:
It is among the best platforms created by Naval Ravikant and the Babak Nivi. This platform has become one of the biggest things for attracting startups and investors. It has a solid presence among US startups, where small companies and other community members have their profiles ready for investors to see and ask about any details before investing.
Conclusion
So, what did you learn today? Every investment is different! At the end of the day, it comes down to what you want your investors to be. If you’re going to get the cheque and never see the investor in your board meetings, you will not be able to convince other investors. Only you can answer if you’re going to give a board seat to someone in exchange for money or not. Evaluate the advantages and disadvantages carefully before jumping in the pool.
Raising funds from angel investors is among the hardest things to do on this planet, so make sure to give your best and make it worth it when you finally achieve it.
