One of the key components to successful crowdfunding is the involvement of angel investors who are proving to be a lucrative source of finance for businesses of all shapes and sizes.
It’s a good idea to understand exactly what an angel investor can bring to your business, so let’s take a look at their makeup and objectives.
The Basics of Angel Investing
Angel investors are those investors who look to invest their own capital in to investment opportunities such as crowdfunding for equity. Their investment will be made as either an individual investor or a group of investors.
Their aim, as with all investments, is primarily long term profit, but they also promise to bring plenty of experience to the project as well to help support the business and grow. Ideally, these angels are looking to make a return on their investment within 3 – 8 years.
In the UK there are estimated to be around 20,000 angel investors, but this number is steadily growing as the success of crowdfunding schemes gathers more pace. Despite a relatively small number of investors, they are regularly contributing around £850m per year which marks them out as highly productive investors.
Are Angel Investors the same as Venture Capitalists?
The traditional funding source for a business has been through venture capitalists, but angel investors are a very different and modern phenomenon.
Venture capitalists tend to deal in high amounts of capital – sometimes a minimum of £1m – whereas angel investors are more likely to invest in smaller amounts from £5,000 up to £500,000. This marks angel investors out as highly desirable investors when it comes to crowdfunding for startups.
Due to the large risks taken by venture capitalists with their weighty investments, they tend to delay the investment process due to their due diligence processes. Angel investors, however, are dealing with much smaller amounts of capital and are able to make their decisions much quicker.
And venture capitalists will often insist on forming and joining a board of directors to keep a close eye on their substantial investment. Angel investors, though, are much more likely to take a passive role in the day to day running of any investments.
What Appeals to Angel Investors?
Angel investors are usually wealthy entrepreneurs and have a keen eye for a good business opportunity. As a result they will look for certain aspects in a business to confirm it’s a viable investment opportunity.
The first port of call will be to identify and evaluate the team behind the project. Those teams which have amassed plenty of experience and relevant skills will always make for an attractive proposition. As with all business ventures, communication is vital from day one, so dealing with angel investors’ queries needs to be prompt and accurate.
Secondly, angel investors will strive to understand the project to see what their investment will be funding. They tend to favour projects which solve visible problems in unique niches as this promises better returns on their investment than opportunities in crowded marketplaces. And, of course, the potential returns on their investment need to be clear from day one.
Angel investors, then, stand out as a unique funding opportunity be it crowdfunding for equity or startups. Their investments can be seen as highly important steps in advancing the potential of business opportunities and improving performance.