Working with an angel investor can be a great way to get funding for your startup. Learning the shared risk factor involved and the potential upsides and downsides of raising money from angel investors is essential if you're considering raising capital from angel investors.
What is an angel investor?
An angel investor is a wealthy individual who invests in startups or established companies and helps guide the company to success. Angel investors typically invest as little as $10,000 with the hope of making several times more in return. Let's look at why you should consider working with an angel investor and some pitfalls to avoid when working with them.
The Pros of Angel Investors
An alternative to traditional sources of funding
Traditional funding sources, such as banks and venture capitalists, have become increasingly difficult for small businesses to access. Angel investors offer an alternative to these conventional financing options by providing capital to startups and small businesses that are usually too risky for banks and venture capitalists.
Expertise.
A significant benefit of angel investors is their expertise.Angel investors are experienced and knowledgeable, which can be an invaluable asset to a company. They will be able to provide you with guidance on how to grow your business, what mistakes to avoid, and how to attract more customers. This can be especially helpful if you're starting and don't have much experience running your own business.
Connections.
The most obvious benefit of having an angel investor is the connections they bring with them. When you have a networker on your side, you can leverage those connections to help grow your business and connect with new customers, financing sources, business partners, and other relevant contacts.
Strategic support
Angel investors are a great source of strategic support. They bring a lot of experience and knowledge to the table and are not afraid to say what's working and what isn't. The best thing about this kind of investor is that they'll give you honest feedback—and if they're not feeling it, they'll know how to tell you why.
Flexibility
Angel investors don't have inflexible corporate policies. This enables them to structure their investment deals creatively, which expands the range of investment opportunities available to startups with few financial resources.
Deep pockets.
Angel investors have deep pockets. This means that they have the financial resources to invest in your business and can afford to take risks on new ideas. Angel investors may be interested in making follow-up investments in your small business if it needs financing later.
The Cons of Angel Investors
Most deals are relatively small.
One of the primary drawbacks to angel investors is that they tend to invest less money than groups of investors. Individual investors typically will only invest a few thousand dollars, so you might need to seek out many individuals to raise a significant amount of money.
Shared control.
Angel investors have a stake in the businesses they invest in. In some cases, angel investors can gain so much control over a business that the original owners can't run the company as they had planned. Before finding an angel investor, consider your future goals and create a well-written business plan. To maintain primary control of your business, consider other funding options.
Potential for misunderstanding
Angel investors can help you achieve your dreams, but it's hard to know how much support they will give and whether they will be involved in your business. One of the best parts of angel investors is the informality that comes with them. But that also means that it's easy for angels to be vague or ambiguous in their agreements.
Angel investors provide a different and refreshing relationship for business owners. However, some things should be kept in mind before diving in. You'll need to ensure that you have done your research and understand what you're getting into. With all the possible benefits and drawbacks on the table, it's up to you to decide whether or not working with an angel investor is worth it.
