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What's an Angel Investor?

I define an angel as the first stranger to invest their own money in your company.  Angels need to be high net-worth individuals – those meeting the SEC definition of “accredited investor” – and tend to be successful executives or entrepreneurs themselves. 

Accredited Investor: a natural person who has individual net worth, or joint net worth with the person’s spouse, that exceeds $1 million or income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year.  More info at SEC's site.  

Because they don’t have a pre-existing relationship to you, they need to be convinced to invest in your company. While your friends and family may invest merely to help you out, angels expect to generate a real return for themselves.  In many cases, this is a financial return greater than they could receive on the stock market or other, less risky, asset classes.  (When we consider how risky the stock market has been in recent years, this is a good indication of how very risky angels consider it to invest in your company, despite your enthusiasm.)  

It gets even more complex.  In this complexity lies opportunity.  There are a lot of angel investors out there (not including the masses soon to emerge from upcoming crowdfunding opportunities).  Each angel invests their own money.  Because they only have to report to themselves (or their spouse), an individual angel may have other motivations to invest besides pure financial return.  These may include an interest in what the company does or its market, a belief in the entrepreneur, a passion for helping young companies grow, or and opportunity to “buy into” a job or part-time hobby.  Or, in the case of medical or health-related companies, it may be a desire to see the product or service come to market to allow the investor to live better or longer.  

For an even more "layman's" overview of angel investors, email me and I'll send you one of my most popular presentations, titled, "Angels are Like Grandparents."

Learn about angel groups here.