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What is an Angel Investor?

Posted by Travis Levell on 2014-08-19

Oftentimes, entrepreneurs feel that their idea or company will need funding, whether it is to produce a tangible product on a small scale, or to create an app or service. Although funding may not always be a necessity as early on as many founders think (See: Bootstrapping) the large benefit that it does offer is the fact that with funding, things can executed either much more quickly, be launched on a much larger scale, or both. Before deciding what type of funding that you may need, it is important to discover what type of funding options you have.

In our Startup Funding Demystified series we uncover the inner workings of one of the most sought after things in entrepreneurship. Funding. Whether you are only an aspiring entrepreneur or have already started a company we are presenting some valuable information that will help anyone in their journey.

So, what is an Angel Investor?

Definition: “Angel Investors might be professionals such as doctors or lawyers, former business associates -- or better yet, seasoned entrepreneurs interested in helping out the next generation. What matters is that they are wealthy and willing to invest hundreds of thousands of dollars in your business in return for a piece of the action.” Definition by Entrepreneur.com

Analysis:  Angel Investors are great options for new businesses that have never had a substantial amount of funding. Currently many Angel Investors like to see some significant progress prior to contributing money to your venture. Some good signs that many Angel investors look for are

  • You have committed some of your own money to the project - This shows that you are serious about seeing your idea succeed. There is a high amount of entrepreneurs that are not fully committed to their venture, and will not invest their own money on it. For an angel investor, why would they invest in you, if you won’t invest in you?

  • You have raised a small amount of money from your family and friends - This shows that more than one person thinks that you are credible and able enough to invest money in you

  • You have already made progress or created a minimum viable product - If an angel investor can see that you have been responsible, committed, hard working and good at what you do prior to having funding this is a great sign that you are a good candidate to fund.

  • Your venture has at least one person working on it full time - Angel investors need to know that when things get hard, there is going to be a go-to person that worries about it. If you have other team members that work on it part time, in many cases the person who started the project will have to fully take the full time plunge at some point

Angel investors are often in the position that they are in, because they have a surplus of money and are looking to foster new ideas and bring them to the world. They can be the people that will listen to your idea, understand it and provide you with the money and connections that you need to be able to bring your idea into reality.

See also: What is Venture Capital?

In research done by startups.co compiled in an infographic featured in an article by Andrew Marinaccio titled "The State of Angel Investment," they found the following statistics about angel investors

Angel investing statistics:

  • Angel investors spend spend $20 Billion a year on new businesses

  • 80% of the $20B spent, is in seed, or early stage ventures

  • There are 258,000+ known Angel Investors in the United States

  • Individually they will invest up $100K+ in new ventures

Keeping these numbers in mind, it is a fact that there is a considerable amount opportunity within the world of first time funding for ventures. It is not as far off as many think, as long as you keep these things in mind while building your venture.

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