Venture Capital Firms

What are angel investors?

Angel investors are, quite frankly, the best friends of those who are just starting up new businesses. These businesses have a need to look for seed money in lots of different places. When the owners of these businesses have exhausted all of their conventional options—such as using their own funds or borrowing from friends and family—they usually look to angel investors. Angel investors come in handy a lot when new businesses fail to get either venture capital funds or ordinary bank loans.

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The role of an angel investor is as follows. He or she simply dips into his or her own funds to contribute to the money required to start up a business. In exchange for this capital, the angel investor receives a portion of ownership in the new company, which can be as little as 10 percent or even as high as 30 percent!

An angel investor usually gets involved with investments that are pretty risky. As such, he or she frequently chooses companies that possess a good expectation of returning approximately 10 times the initial investment in just 5 short years! Some angel investors might even be more aggressive and search for companies that can feasibly give them a return of between 20 and 30 times their initial investment. Much of the time, he or she will only receive approximately 20 to 30 percent profit on any advance capital, yet this is still seen as sizable.

Diversification is key to being a successful angel investor. It is not uncommon for said investor to put money into more than one startup business. If the new business in which the angel investor puts money into fails, his or her money will be unrecoverable. A person who is an angel investor is already sufficiently wealthy to be able to invest a lot of money with a very high risk of loss. Even if the angel investor loses the startup money in a bad investment, he or she can frequently still claim it as a tax write-off.

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Peter

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