Four Things You Need To Know About Angel Investors

Here's a primer on how to get money from these generous benefactors, and what you need to know before approaching angel investors.

Shutterstock.com

Who Are They?

In simplest terms, angel investors are individuals who invest their money into an entrepreneurial company. They can be extremely wealthy individuals or medium net worth professionals looking to invest their savings into a project that they believe in (either for its profit potential or their belief in the mission or individuals behind it).

How Do They Work?

Angels usually get involved with businesses in the seed, start-up and early-stage phases of their operations. This is different from venture capitalists, who usually invest large amounts of other people's money into a project once it's further established. While some of the medium net worth professionals could be people already within an entrepreneur's circle of contacts, there are more and more people —often former entrepreneurs themselves—who specifically categorize themselves as angel investors.

There are also different angel groups, in which many smaller net-worth investors pool their own money into a single investment. It all varies based on the project, but most angel investments, whether from a single investor or an angel group, usually fall between $150,000 to $1.5 million. In return, the investor usually gets an ownership share in the business, which they'll often sell if it becomes profitable down the road.

According to the website for the Angel Capital Association, a resource group for both startups and angel groups, the best time to approach a potential angel investor is when your product is near completion, you have a confirmed group of potential customers, you have exhausted all other personal financing alternatives and have a top business plan that can demonstrate rapid future growth and revenues over the next three to seven years.

What's Good?

Most angel investors have a motivation beyond sheer profit. They are putting their funds behind something they believe in. Because of that distinction, it can be a wonderfully symbiotic relationship as long as the entrepreneur is completely forthcoming about his or her vision and the potential for success.

What's Bad?

Unlike venture capitalists, angel investors are putting their own personal stakes into the success of your company. That means giving them a say in how you decide to move forward with it. If an entrepreneur doesn't want to have to take advice from investors, or in some cases accept decisions from a board of directors made up of them, he or she may want to find another way to get the company off the ground.

The Venture is a new global social enterprise initiative searching for extraordinary startups and new ideas that use business to create positive change. If you have a GCC-based social enterprise or an idea for a social enterprise, enter The Venture #WinTheRightWay to potentially win your share of US$1 million.