An angel investor is usually an individual, often an experienced entrepreneur or executive, who invests their own money in early-stage startups. The investment happens at a stage when there is not yet a complete product or significant revenue, and the risk is high.
What they give and what they get#
An angel gives the team a sum, relatively small compared with large funds, and takes a percentage of equity in return. Besides money, they often bring experience, advice, and introductions to useful people.
Difference from a venture capitalist#
An angel invests personal money, usually at a very early stage. A venture capitalist (VC) invests money from a fund raised from others, with larger sums and usually at a more advanced stage.
Example#
An executive who has worked in e-commerce for years sees a team with a good idea for a store tool, may invest a sum in it, and holds a monthly meeting with the team.
Practical tip#
Money is not the only thing that matters. Choose an angel with experience in the same field who treats the team with respect. Put the equity and decision-making terms in writing, make them transparent, and get help from a legal adviser.
Common misconception#
Being an angel does not mean being an investor with no expectations. They also expect a return and know many early investments fail, so they need to invest in more than one place.