What Is an Angel Investor?

Some angel investors like to view themselves as venture capitalists: making savvy deals, being part of the next growth company, and vicariously experiencing the thrill of building a business; this is good for you—don’t be afraid to play to the egos of these people.

Often, they have some excess funds to invest, and the ideas of feeling important, feeling like a financier, and feeling like they are part of something exciting are strong motivators. So with these types especially, you need to be careful to interact with them with respect and to be deferential.

Some angel investors primarily like to help out budding entrepreneurs. Often, these types of investors can be the best, as they have made a lot of money themselves in their own business and may be willing to offer advice and not just money, especially if they have experience in your field.

Other angel investors just want to make money. These are more likely people who made their money in professional jobs, such as doctors and airline pilots, rather than a business. These types may really need the money to keep up their lifestyle in retirement, are least likely to understand the risks in many businesses, and are the most likely to sue you if you lose their money.

Often angel investors like to invest very small amounts of money. For an individual to invest $50,000 in one business is not uncommon. So you might need to get money from several, or even a lot, to finance a business. Sometimes they may have a formal group, where everyone participates in a finance round, but more often they are part of a less formal group, or multiple groups, that considers proposals together but makes decisions individually.

What Are the Downsides of Using Angel Investors to Finance Your Small Business?

One of the hidden costs of using angel investors is that for a very small investment, they may want to spend a lot of time hearing about your business and what it is up to. For someone like me, with little patience, that could be difficult. But, if you need the money, angel investors can be a great source.

One of the most successful businesses I have seen benefit from angel investing is the restaurant business. For example, I see some well-known celebrity chefs raise money from angel investors who appear to be more interested in feeling part of the restaurant and getting special attention when dining than in making money on their investment. Some of these celebrity chefs will lose money on one restaurant after the next and still have angel investors lining up for a bite-size piece of their next venture!

Takeaways You Can Use

  • Angel investors can have a wide range of motivations and expectations.
  • One angel investor is not necessarily going to be enough to finance your business.
  • Angel investors can have hidden costs, including tying up your valuable time.