What is an angel investor?

Last Updated: November 4, 2023By Tags: ,

An angel investor is a person or corporation that provides capital for startups in exchange for equity or convertible debt. They can provide a one-time investment or an ongoing capital injection to help the business get through difficult initial stages that may require a larger amount of investment.

Unlike banking institutions that invest in already profitable businesses, angel investors invest in entrepreneurs who are taking their first steps in the sector, as startups.

In most cases, they play an active role in managing the new company as a way to protect their investment and help the owner build a thriving business. Furthermore, some passive investors invest through a fund or Private Placement Memorandum and are not directly involved in the sector. The term “angel” came from Broadway theater, when wealthy individuals gave money to boost theatrical productions. The term “angel investor” was first used by William Wetzel, from the University of New Hampshire, fundador do Center for Venture Research. Wetzel published a study on how entrepreneurs raised capital.

Business success

The funds that angel investors provide can be a one-time investment to help the business get off the ground or an ongoing injection to support and lead the company through its difficult early stages. When compared to capitalists, who use a mutual fund for risky investments, angel investors may be more patient with entrepreneurs and open to providing smaller dollar amounts for extended periods. But they want to see an exit strategy at some point where they can pocket their profits, usually through a public offering or acquisition.

When there comes a time when, to advance, the company needs additional capital and you do not have enough funds to finance it, an angel investor could be the solution. The funds they bring to the table can make all the difference in getting your concept off the ground. But there are some pros and cons that you need to know and be aware of when looking for an investor..

Advantages and Disadvantages of an Angel Investor

Angel investors finance companies in many sectors. Get to know the advantages and disadvantages of angel investors:


Having an angel investor means that your company does not need to reimburse the funds because you're giving in shares of ownership in exchange for investment, which is generally reserved for established companies after the initial phase. Such companies need to demonstrate that their products or services have potential growth and profit margin acceptable for an investment. And why this reason they need capital to develop products or leverage production and expand markets. Angel investors in addition to offering capital, may also feel motivated to help you conduct the company to ensure success by means of guidance or offering direct management help.


The main disadvantage of using angel investors is a loss of full control of the company. As co-owner, will have part of the control of business operations and the way how it will be administered. To the unlike a common loan, or bank credit line that does not they don’t even have a shareholding, no in company profits. Although, o angel investor will receive a portion of the profits when the business is sold.


Some sources of financing include: Angel List: An online platform that helps entrepreneurs find investors. Angel Investment Network: One online network with more than 279.000 investors. The owners of companies can create a profile and promote your business. If there are interested angels, they will invest. Professional social networks: o LinkedIn, for example, can provide a direct way to connect with an angel investor. Local business schools or groups: check schools or organizations of local businesses in your area to see if they can connect you with a angel investor. Some successful Brazilian entrepreneurs are appearing on the horizon with interest in new investments and willing to inject capital and years of experience into the American market for them to be successful, as this guarantees the return of investment.

Business consultancies: Companies like Verge Business Group, they can help you structure your company and business plans before present to an angel investor. Therefore, before even contacting an angel investor, make sure your business plan is correctly structured, that is attractive and demonstrates its viability.


It is important to know that the more capital an angel investor injects into the business, higher return will be expected. You may already be familiar with the term Return on Investment (ROI – Return of Investment). ROI expectations vary among investors, as do the opportunities offered for each investment..


Angel investors will have an ROI expectation in mind as part of their exit strategy. This is when they sell their stake in the company to offset the initial investment and profits. AND It is good to remember that financing of venture capitalists will have a higher ROI expectation. As this type of company is distributing significantly more money, they want a percentage of profit more expressive.


If you want to raise funds through investor financing angel, the time is ripe for entrepreneurs. Prepare for this stage, to take the next step. Search for an angel investor using plataformas on-line, media networks social or business organizations locations in your community. Make one good research work and seek solid references before contacting any investor. You don't want to get involved with an undesirable partnership that will bring more headaches than solutions. Review your plan carefully business and collect all documents performance-related critical and financial projections of your company. Connect with entrepreneurs known and of good reputation.

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