Definition of an Angel Investor
Angel investors are lifesavers for many people who lack adequate financing to open a small business. Angel investors differ in many ways from traditional investors or banking institutions, but they aren't for everybody. Angel investors provide capital for start-ups, but with various rules and regulations. However, angel investors can be more lenient with terms and conditions, depending upon the prospective return.
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Basic Definition
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There is a lot that goes into being an angel investor, but basically an angel investor is someone who invests in a business. They look for businesses they hope bring a higher return than traditional investments would. They often are entrepreneurs who want to help others open their business and become successful, according to Small Business Notes.
History
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"Angel investor" was coined in the early 1990s to mean extremely wealthy businessmen who invested in Broadway productions. Historically, those with enough money to invest in businesses were difficult to find, so they were considered angels to those they invested in. Angel investors gave people the chance to open their businesses when they otherwise might not have had the financial resources.
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Funding
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Because of the relatively private nature of angel investments, there is some speculation about the details of such transactions. However, typical funding can range from $150,000 to more than $1 million. Angel investors often prefer to spend more money to open a business as long as it is used appropriately, as they know that it is likely to end up with a better return.
Return
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Although angel investors do wonderful things for business owners, they do not do so without a likelihood of a good return. There are an 250,000 angel investors in the United States, and collectively they fund nearly 30,000 small businesses annually. The total investment from angel investors is estimated at $20 billion to $50 billion, which dwarfs the amount that venture capitalists provide.
Expectations
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Each angel investor is different and has her own expectations. Many of them seek a board position or a role in which they have power. Angel investors require good communication, the key to running a successful business. The percentage of profit they want depends upon your individual contract, but it is often more than what a bank would require.
Be sure to talk with your angel investors so that you are both satisfied with the terms. Be honest about your expectations and receptive to theirs. If you cannot agree on certain terms, attempt a compromise so you both benefit.
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References
- Photo Credit business colleagues preparing for business meeting image by Vladimir Melnik from Fotolia.com
