An angel investor is a (usually) high net worth individual who invests some of their own money into start-ups, typically in exchange for equity. Some important points below:
- Angels invest their own money
- They may invest a little, or a lot
- Some are doing it for fun, or to follow their professional interests
- They may feel more personally invested in the returns and future of the start-up compared to, say, a venture capital firm or a bank
- Every business angel (BA) has different interests, motivations and level of assets because… well, they’re human, and not part of a big institutional investment firm
What other deals and investments have angels been involved in?
When choosing to fundraise with angel investors, founders should do some due diligence.
They could ask other investee companies what these angels are like to work with i.e., is the angel experienced, and do they have personal reasons for getting involved?
Are they likely to ask a lot of information, or be more hands-off?
Has the angel written something insightful on the sector / company / industry on LinkedIn, or are they part of an industry association?
Most angel investors understand they are not providing a loan; they know it’s a risky investment and are only expecting a return if and when the start-up is successful. But it can be insightful to discuss how they behaved in case of losses or difficult times in their portfolio.
An angel syndicate is an informal group of individual and / or angel investors who pool their resources together to invest in start-ups, normally via a Special Purpose Vehicle.
Each member of the group may not qualify as a BA themselves, but together they have access to more opportunities.
The total amount invested will probably be lower than funding from a venture capital firm or a bank, but the good news is that founders can receive cash much earlier on compared to traditional funding routes or from bigger investors.
Early investment does not mean sacrificing due diligence or expertise, however: angel syndicates may want to see pitches and presentations, have access to company documents, and some syndicates have sub-groups that specialise in certain areas e.g., healthcare, so they often know what they’re talking about.
As well as investing in early-stage deals, another major advantage of an angel syndicate is that the start-up founder can deal with just one representative of the syndicate, rather than with 10 or 20 individuals.
One syndicate representing a group of investors means the founder ends up with a much cleaner record of who owns what in the company(known as a ‘cap table’), attractive features for bigger investors when it’s time for more funding rounds.