What Are Angel Investors?

Find out about angel investors for startups and small businesses

If your startup or small business is in need of funding, angel investors might be able to help.

But, who are these angel investors and why would they give your business money? If you’re curious to find out more, this article will give you some information about angel investors, what they are, how they can help, and, what are some of the pros and cons.

What Are Angel Investors?

Angel investors are people who invest in businesses and can offer you funds, often in exchange for ownership or stake in your company. As such, if you have a company that is in its infancy, an angel investor could invest between $25,000-50,000 to help you with costs. Moreover, an angel investor can be a good alternative for new business owners who don’t yet qualify for a business loan.

How Can They Help Small Businesses?

As mentioned, angel investors can help you grow your business by providing you with funding. Often, these individuals are also well-connected to other investors and relevant marketers and can even help you develop a strategy and get your product some much-needed publicity. Once they help you, they too have a vested interest in your business’ success.

How Do they Differ from Business Loans?

There are several ways in which business loans are different from angel investors. For example, angel investors bring experience along with the money, while a lender will simply provide funding and leave you alone (provided you pay on time of course).

Furthermore, they differ in terms of repayment structure as angel investors will often require a part of your company in exchange for the funding, while a business loan simply charges you interest. Business loans are also more regulated and will have minimum and maximum APRs and term lengths.

Pros and Cons

A big advantage of angel investments over traditional business loans is often the amount of financing you can receive. The maximum loan amount from business lenders like Lendio and BlueVine is $5,000,000, and while that is certainly no small amount, very few businesses will be eligible for that loan. Investors are able to offer amounts even higher than that, which can mean more employees, better equipment, a larger advertising budget, and more.

On the down side, if you use an angel investor, you can lose full control of your business. This happens because an investor who you may not know or necessarily trust is now a part owner of the company. When before you had complete control over any business decisions, you now have given up much of that control in exchange for the funds.

Final Thoughts

Landing an angel investor or investor of any kind can be a huge step in the right direction for any business. In addition to the instant funding, you’ll have access to a wealth of resources you may have never dreamed possible. However, giving up stake in your company is no small matter and you should be sure to explore all your options before deciding which route to take.