What is an Angel Investor?

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You’re an entrepreneurial-minded professional with a small business idea. You have a start-up and need funding for prototypes, manufacturing or operations.

It is time to learn about angel investors.

An angel investor, who can also be called a business angel, is a financial investor who specifically is in business to provide funding to entrepreneurs with an idea or to business owners who need start-up funding. Because this individual provides financial backing to business-minded people who otherwise could not receive funding, the term angel investor was coined. This article will teach you about how this specialized type of investor helps entrepreneurs and what types of entrepreneurs are good candidates.

How Do Angel Investors Help and How Are They Different From Lenders?

You might think that angel investors sound a lot like commercial lenders, and in some ways they are very much the same. Where they differ is in the terms of lending. These business angels make money off of lending to passionate and driven candidates and they make money by offering better terms than a large lender would offer and help that contributes to business success.

A new business owner or an entrepreneur who has a business idea that has the potential of growing huge is a large risk to a lender. To a business angel, there is not much risk present because they are not simply investing in whether or not the business is viable, but in you as a professional and an entrepreneur. While many use the term “venture capitalist” (or “VC”) and “angel investor” as one and the same, the two are, in many ways, opposites. Angel investors are focused on helping the professional start a viable business that can eventually grow and succeed while venture capitalists work with businesses that are already succeeding and need capital to grow what should already be working.

Who is a Good Candidate for Angel Investments?

Now that you know how angel investments differ from other types of funding, you need to know if you are a candidate for this type of investment. The investment could be a one-time injection of funds into the business or a steady stream of capital. If you want an angel to give you funding, you will need a promising opportunity with potential for profits in the future. You must also be able to market yourself because the investor will become part owner of your company and will want to know they are partnering with a winner. Be sure you choose an angel who has shared expertise that will benefit you and who knows your industry. The cash by itself generally does not help make an enterprise successful. Surround yourselves with partners (including investors) who can help you succeed and everyone will win.

There are several ways to get funding, but the options tend to be limited for people with little business experience who are just starting out. If you have a promising opportunity to start your own business or a great product that you feel the market wants and needs, it may be time to network and find an angel investor to help make your dreams come true.

Nate Ritter lives in Austin, Texas (U.S.), popularized the #hashtag and creates web applications for a living. He also does miles and point hacking to enable cheap travel for his family. More here →

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