What is an Angel Investor?

By far, the most common question we get is – “How does it work? What IS an angel investor?”

What is an Angel Investor?

Wikipedia has as good a definition of “Angel Investor” as we have seen 

An angel investor (also known as a business angelinformal investorangel funderprivate investor, or seed investor) is an affluent individual who provides capital for a business start-up, usually in exchange for convertible debt or ownership equity. Angel investors usually give support to start-ups at the initial moments (where risks of the start-ups failing are relatively high) and when most investors are not prepared to back them.

We are not a venture capital business – they take capital from other investors and use it to invest in businesses on behalf of those investors. 

Nor are we a bank or other financial institute – we don’t offer loans or services to consumers and individuals.

This system is a business-to-business transaction. We – and other Angel Investors – use personal funds (income from our other businesses etc) to invest in small businesses who need funds to start up or to grow. In exchange for that investment, we take a share of the business and hence, a share of the profits. As shareholders, we also have some voting power in terms of the direction and strategy of the business.

How do we get our money back?

Every situation is different, but broadly there are three ways that we gain a return on our investment

 

  1. We sell our shares at a profit – either back to the other directors or owners of the business, or to other shareholders or external parties.
  2. We hold our shares and the annual share of profits (known as dividend) is paid to us as shareholders.
  3. Sometimes, our investment is given as convertible debt or similar where the investment is paid back to us as a loan repayment which also has some equity as part of the agreement.

If you think that this might be a good solution for your business, please feel free to apply now. We’d be delighted to hear from you.