WHAT IS ANGEL INVESTING: Definition, How It Works & Best Platforms

Without the individuals known as Angel investors, it will be somewhat discouraging to go ahead with writing business plans, proposals, or even pitching your business ideas. This set of individuals doesn’t just provide 90% of the required start-up capital but also brings guidance, networking, and knowledge, hence, the “angel” in the description. In this article, we will be discussing the act of angel investing and how it works. We will also provide you with a list of angel investing platforms and how to find angel investors.

Angel Investing: What It Is

Angel investors are wealthy individuals who provide capital for a new business in exchange for convertible debt or ownership equity. A small but growing number of angel investors form angel groups or angel networks in order to share research and pool their investment capital. Unlike venture capitalists, who manage the money of others in a professionally managed fund, angels typically invest their own personal funds.

Angel investing is frequently a riskier investment than traditional stocks and bonds, but it also has the potential for higher rewards. Angel investors, for example, may be more inclined to invest in enterprises in less affluent economic communities because they have fewer resources than their larger competitors. As a result, angel investing can provide much-needed capital to businesses that would otherwise be unable to obtain funding.

How Does Angel Investing Work?

Angel investing is a sort of private equity investing in which high-net-worth individuals strive to make larger returns by taking on more risk than investing in public markets.

Angel investors usually fund a business startup in its early phases. These companies may not even have clients or earn any cash – they may merely have a good business plan, proposals, or a minimum viable product. Angel investors’ capital is typically used for research and development, to assist a firm in developing its product and service offerings, designing a business strategy, or identifying its target market.

Venture capitalists frequently enter the picture at this point to provide the next round of funding as the company grows and scales its production, operations, and marketing.

An angel investor does not have a defined investment minimum or amount. The amount might be $10,000, or it could increase to millions of dollars. It all depends on the situation. In exchange for the cash investment, the business normally grants the angel investor a set number of shares or the ability to buy shares later.

Depending on the startup’s finance requirements, an angel investor could provide a one-time investment or ongoing capital contributions.

Read Also: How To Find Angel Investors For Your Small Business

Why Consider Angel Investing?

The possibility for big profits is one of the most tempting aspects of angel investing, and it may be a very profitable business. Angel investors often earn a percentage of the company in which they participate, which can result in a considerable return on investment if the company succeeds. Angel investors often make investments in early-stage businesses with great growth potential. While there is always some risk associated with any investment, the potential benefits of angel investing can be highly tempting.
Another motivation to explore angel investing is the opportunity to be part of innovative new businesses and technology. As an angel investor, you will have the opportunity to be among the first to invest in a potentially game-changing new venture.

This can be a motivating and personally rewarding experience. Furthermore, by investing early in a new company, you can contribute to defining its future course. Angel investing can be a great method to support and grow innovative enterprises. Angel investors can stimulate economic growth and create new jobs by investing in new businesses.

The Angel investment can be a personally rewarding experience. It can be rewarding to know that you have contributed to the success of a small firm, and you may even form relationships with the entrepreneurs with whom you invest. Angel investing is a terrific opportunity to give back to the entrepreneurial community. You provide funding and advice to early-stage firms as an angel investor. In exchange, you get the satisfaction of assisting entrepreneurs in realizing their dreams, as well as the possibility of a financial return if the company is successful.

How to Become an Angel Investor

Having read the reasons why you should consider angel investing, you are likely interested in becoming one. Find out how in the following guide:

#1. Check your credentials

In normal circumstances, being an angel investor requires achieving the qualifications of an accredited investor. This means that your earned income over the previous two years must have been over $200,000 or more with a spouse or your net worth, alone or with a spouse, must have exceeded $1 million in investable assets.

#2. Understand how to source deals

Many angel investors have a well-established network of startup founders and entrepreneurs in their respective industries. They frequently hear about new businesses and can find offers to consider because they interact with these relationships on a regular basis.

When veteran angel investor decides to support a business, they can also form and lead an angel syndicate, which is a group of angel investors that pool their resources to fund a certain project.

If you don’t have access to this type of network, you can contact a startup creator directly if you come across a company with an intriguing new business concept that you’d like to investigate and possibly invest in.

Another option to source for deals is to join an angel group, which connects you to a community of angel investors who evaluate and invest in new enterprises together. When you uncover a good bargain, do your homework before negotiating the size of your capital investment and matching the percentage of company ownership.

How Much Money Do I Need to Be an Angel Investor?

An angel investor does not have a defined investment amount. The sum could be $5,000 or it could be in the millions of dollars. It all depends on the situation.

What Are the Benefit and Pitfalls of Angel Investors?

The Benefits of Angel Investors
Because you’re giving ownership shares in exchange for money, having an angel investor means your company doesn’t have to repay the funds. Angel financing is often reserved for established enterprises that have progressed past the startup stage. These businesses have proven financial potential, but they still require funding to create products or grow. Because an angel’s money is at stake, they may be very driven to assist you in succeeding through mentoring or direct management assistance.

The Drawbacks of Angel Investors
One significant downside is that most angel investors require 10% to 50% ownership of your company in exchange for money. That means business owners may lose control of their company if angel investors feel they are impeding the company’s success. It is critical to consider how much equity you want to give away to an investor for funding because if you give too much, you may no longer own the firm if things do not go well and the angel investor owns more than you.

Best Angel Investing Platforms

Angel investing platforms are websites or apps that connect a list of angel investors with startups. In other words, these platforms make it easier for new businesses to locate and combine with angel investors. This chapter talks about the top angel investing platforms that you should know and probably consider.

#1. iAngels

First on the list of angel investing platforms is iAngels. This platform brings certified investors from all over the world into the Israeli investment sector.

The minimum investment is set at USD 10,000 per transaction. Investors can choose between opening a self-managed account and benefiting from a Managed Account. The minimum investment commitment in the latter situation is USD 250,000. Investors have access to a customized dashboard where they may get quarterly portfolio updates, tax reporting, and investment position appraisals.

There are no registration costs on the platform. It does, however, impose a 10% one-time management fee as well as a 20% performance fee on earnings.

#2. EquityNet

EquityNet, a prominent pioneer and innovator in the disciplines of crowdsourcing and marketplace financing, has maintained one of the largest startup funding platforms since 2005. The EquityNet network represents around 10,000 enterprises and has aided in the production of over $600 million in business capital. EquityNet provides cutting-edge technology for planning and administering fundraising campaigns to entrepreneurs and investors, and the company holds multiple patents in the field.

#3. Envestors

With knowledge and a digital platform, businesses have the highest chance of meeting their funding target. Envestors supports business growth by bringing together intelligent investors, entrepreneurs, and the networks that support them from various communities, industries, and geographical regions in a single marketplace.

Since its inception in 2004, the platform has supported over 200 fast-growing firms in raising more than £100 million through their own private investment club.

#4. SeedInvest

Despite ranking third on the list, SeedInvest is undoubtedly one of the best angel investing platforms for startups in the health tech area. All of the entrepreneurs are pre-screened on the platform to aid them in getting their businesses off the ground, and the investments are fully crowdfunded.

Furthermore, SeedInvest provides much lower minimum investment requirements than traditional startups, offering corporations more opportunities to invest. Over 200 companies have received over $200 million in capital from over 500,000 investors.

#5. Angel Investment Network

Angel Investment Network is just about the best platform as much as other angel investing platforms on the list. This angel investing platform is among the world’s largest angel communities, with over 2,000,000 members, including 320,000 investors and 1,611,569 entrepreneurs.

Angel Investment Platform is designed for savvy investors and financial professionals. The service is free for investors, but entrepreneurs must pay a monthly charge to utilize the platform.

It is not a crowdfunding platform, however, and simply connects investors with entrepreneurs. Once they connect, all investment procedures are carried out between them rather than through the platform. As a result, it is critical for investors to conduct their own due diligence on each project in which they are interested.

#6. Leapfunder

Leapfunder is Europe’s premier angel investing platform, allowing investors to invest in potential firms using Leapfunder notes. When an investor recognizes a potential startup, he or she invests a fixed amount and receives convertibles in the form of Leapfunder notes. All investments are deposited and maintained in a separate bank account. Only if a startup meets the minimum investment goal before the investment round closes are funds transferred to it. If the minimum is not met, the funds are returned to the investors.

If the investment round is successfully completed, Leapfunder notes are converted to startup shares held by a Special Purpose Vehicle. The value of the Notes will also increase at a fixed rate.

The minimum investment is €1.000, while the typical investment is between €5 and €10,000.

#7. VentureSouth

VentureSouth provides financing and expertise to startups in the United States’ southeastern region. Over 450 investors have joined the site. It secures VentureSouth’s position as a leader among similar venues in the United States.

The average startup capital amount ranges from $250,000 to $1,000,000, and organizations seeking financial aid must go through a rigorous due diligence procedure. Only about 1-2% of all firms that request funding are successful.

#8. Alliance of Angels

The Alliance of Angels is the Pacific Northwest’s finest and most active angel group. The business provides competent financial advice to its clients. Although the company is still small, it offers a variety of options and good services and is growing on a regular basis. They give more than $10 million to over 20 companies each year. Since 1997, this group has made investments totaling $100 million or more in 200+ firms and celebrated 40+ exits totaling more than $1 billion in earnings. A $6.6M seed fund has joined the network of 140+ active angel investors.

The corporation provides a wide range of services to consumers in numerous business sectors, including superior venture capital, finance, and angel investment.

#9. Funded.com

Funded.com has been the go-to resource for entrepreneurs looking to launch, extend, or create their businesses and projects by locating the right investors since its inception ten years ago.

This angel investing platform has expanded its investor roster, which is constantly growing. Some consider their list to be a true treasure mine for entrepreneurs looking for investment. They have received numerous honors for their dedication to aiding new and existing businesses.

Funded.com brings people and businesses together by introducing them to various types of investors and allowing them to view, explore, and interact with thousands of available profiles. Angel investors, venture capitalists, private equity firms, and seed capital are among these investors.

#10. Nexea

Last on our list of best angel investing platforms is NEXEA. This is a renowned Malaysian angel financing network that assists Southeast Asian entrepreneurs. It charges investors a share of the profit if their investment is successful and the startup in which they invested begins to profit.

Due to the company’s extensive due investigation, only 3 -10 of the approximately 1,500 organizations looking for investment possibilities per year acquire finance.

NEXTA only works with high-net-worth individuals or high-income earners, defined as those with a total wealth or personal assets worth RM3 million (approx. $680,000) or a gross annual income of RM180,000 (approx. $40,900) in the previous 12 months, or jointly with a spouse with a gross annual income of RM250,000 (approx. $56,800) in the previous 12 months.

Is Angel Investment a Good Idea?

One of the most tempting parts of angel investing is the possibility for big profits, and it may be a very profitable enterprise. Angel investors often receive a percentage of ownership in the firms in which they invest, which can result in a considerable return on investment if the company succeeds.

What Percentage Do Angel Investors Take?

The percentage of ownership that angel investors normally take in a firm varies, but it is usually between 10 and 20%.

How Do Angel Investors Get Paid Back?

Angel investors get their reward through a return on investment, which occurs when the firm in which they invested becomes successful. This refund might be arranged as a one-time payment or as a series of payments over time.

Conclusion

There you have it— the top best angel investing platforms, how to become an angel investor, and the benefits as well as the drawbacks involved. Keep in mind, however, that if you want to become an angel investor, it is critical to conduct research and carefully consider any potential investments. You should also be willing to devote both time and money to your angel investments. It is critical to remember that even with the best-laid plans, all investment has some risk. Nevertheless, if you are ready to take the risk, angel investing can be a rewarding experience.

References

Nerdwallet
Forbes
Lenderkit