Angel investing is investing in early-stage startups and existing businesses done by high profile investors, referred as Angel Investors. Apart from investing their money in to the startups, angel investors also provide the much-needed advice, industry insights and their invaluable connections to the founders. Although they invest and help entrepreneurs, many angel investors are successful entrepreneurs themselves.
The way angel investing is done is – most of the times, angels invest their personal money in the businesses. And there’s no specific amount of money that they invest; it can range anywhere between few thousands to a 1 or 2 millions (in rare cases).
Equity-based Investment V/s Revenue-based Investment
The investor then monitors the start-up’s progress and waits for a period of few years for his returns upon the start-up’s exit i.e. that is when the company is acquired or merged with other big organizations. In cases where a startup market value but is not acquired, the investor can sell his equity to another investor based on its current market valuation.
However due to the uncertainty and long wait for returns in equity-based investment, few angels are beginning to invest for revenues too. This model of revenue-based funding is quite popular in natural resources industries and is gaining some momentum in the startup ecosystem.
The way it works is – entrepreneurs going for revenue-based funding get a cash infusion of a certain amount. The investor then seeks a payback which is fixed in duration of time and maximum return; the process more or less looks like a bank loan.
How Angel Investors Help Startups
Angel investing has truly been a life savior for hundreds and thousands of entrepreneurs striving for funds. In an era where philanthropy and charity are significant to building relationships with the community, angel investing has emerged as another powerful way to meet with fellow investors, find more profitable ventures to invest in and become the part of a rapidly growing investment ecosystem in and around Silicon Valley.
That’s one reason why investors to Silicon Valley startups are so deeply connected to the community. There are few angels like Steve Spinner who have even managed to help not just one or two, but several start-ups taste success with his connections and mentoring. Steve puts his years of entrepreneurial experience to support the founders he believes in.
All in all, knowing the basics of angel investing is extremely vital to securing the much-needed funding. It can prevent you from unnecessary hassles and also help you in finding the best angel for your dream start-up.