No, an angel investor is NOT an investor that has golden wings and a halo. An angel investor is someone who provides capital to start up a business and normally expects ownership equity in return for this. An angel investor is known as an angel or a business angel in <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />Europe. The term ?angel? comes from the early twentieth century when wealthy businessmen would invest in Broadway productions. Most angel investors invest their own capital, although there are angel groups (or angel networks) where several investors form a team so they can invest more. <?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />
A venture capitalist is different in that he would be investing pooled money from other people rather than using his own funds. Many new companies require an angel investor if they cannot borrow the money from a bank. Banks are wary about early stage ventures and it can be very difficult to get a business loan for a brand new business. The average angel invests between $150,000 and $1.5 million.
A lot of angel investors are retired executive or business owners who have spare money to invest and who would like to make use of their years of experience as a mentor to others or keep abreast of developments in a particular area which interests them. An angel investor who is knowledgeable about your company is a godsend and can prove very useful in giving valuable advice about how to run things. They might also know some useful contacts. The better your company does, the better your angel investor does, so he will have the company?s best interests at heart.
An angel investor will expect a very high return on investment because of the risk of investing in a new company. Many new companies fail so an angel investor will expect a return of around ten times his investment within ten years. This balances the large risk of losing everything. There is often a defined exit strategy (perhaps an acquisition or initial public offering) in case things do go wrong. The Angel Capital Education Foundation recommends that angels should aim for a twenty to thirty times return on their initial investment. The actual returns, after covering failed investments and holding time over a number of years, might be only twenty or thirty percent. An expert angel expects a third of his investments to fail but expects an average of twenty six percent annual return to make his investment and participation a worthwhile venture.