An angel investor is a person who provides financial backing to a new business venture or startup.
The Long Explanation
Angel investors are individuals who actively seek out new stage businesses and startups to provide funding. These are high net-worth individuals looking to expand their wealth by helping an up-and-coming venture to grow faster.
Whereas venture capitalists are bound to a venture capital firm and only invest a pooled sum, angel investors are loners who seek out ventures they believe in and support them.
Angel investors, however, are not lenders who provide businesses with repayable loans. Instead, in return for their investment, they’re rewarded with a percentage ownership of the venture based on the amount invested and the current valuation of the business.
Successful angel investors tend to earn dividends on their investment at rates they may not receive in the traditional financial market. Most importantly, though, they make back their investment – and then some – if the venture is successful.
For the startup entrepreneurs, angel investing offers them funding opportunities at a level they likely wouldn’t have access to via typical loan agencies. It also provides them plenty of room for growth as they’re not expected to immediately repay the loan.
Instead, a successful entrepreneur may raise multiple rounds of investment, with each round bringing in more investors while recognizing the growing status of the business.
However, angel investing is a risky business. There’s no guarantee that the promise shown by a startup will lead to true business success. As such, some angel investors support their financial commitment with mentoring and business guidance.
Investors may also offer help in the form of marketing, advertising, or partnerships and networking. The goal is to ensure the business has all the tools required to succeed.
Because most angel investors seek out innovative startups for investment, many blockchain startups turn to them for investment.