Angel Investing 101: What Is It and How Does It Work?

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Are you preparing to launch or expand your business? Bank loans or a direct public offering offer conventional means of raising funds. Still, a growing number of companies are looking to angel investing to meet their needs for increased capital.

In 2019, 64,480 ventures received funds from an angel investor. You may be wondering, “What is angel investing?” Read on to learn about how to work with angel investing. 

Who Is an Angel Investor?

Angel investors provide capital to start-ups or expanding businesses. They can also help with business acquisition financing.

The investors are typically individuals who have spare cash to provide to businesses for an agreed return on investment. Some angel investors work as part of a group of investors.

Angel investors must meet the SEC’s definition of an accredited investor. This means that the investors meet a minimum salary requirement and other guidelines. Angel investing is a form of equity financing, meaning the angel investor is given an equity position in the company.

How Does the Process Work?

There are many types of investors. Some have day jobs in medicine, science, or law. Others are full-time angel investors.

Business owners may find angel investors through personal connections, networking, business financial consultants, or by directly reaching out to individuals or groups who are known to invest in certain fields.

Angel investors typically perform research on the company that is requesting capital. If the investor sees the exchange of funds as profitable, both parties agree on a rate of return. Angel investors typically ask for returns of 25% to 60% — significantly higher than a typical loan. 

Is Working with an Angel Investor Right for You?

For both the investor and company, there are many benefits to angel investing. Businesses benefit from a boost in capital growth that can be used to expand production or services. Many start-ups and small businesses that seek angel investment would not qualify for a conventional business loan.

Angel investors are also less risky than taking out conventional loans. Investors assume 100% of the risk of the funds they invest. 

If the business idea fails or falls short of delivering boosted revenue, the loss is assumed by the investor. In contrast, a conventional loan would still have to be paid back by a company.

Going public can also raise funds if you are willing to hire a financing IPO consultant. Selling stocks comes with regulatory burdens. Many business owners prefer the simplicity of working with angel investors.

For angel investors, the form of equity financing can pay a huge return. Some investors earn a 60% return on their financial contribution. The ability to make a significant and quick profit is the main benefit of angel investing.

If your company needs fast capital, an angel investor may be an ideal way to raise funds to grow your business. 

Let Angel Investing Fund Your Company’s Growth

Angel investing is a growing field that allows companies to raise capital when conventional alternatives may not be feasible or possible. As with any business agreement, it is important that both parties have a clear and honest understanding of the goals and expectations that go with equity financing. 

If you are looking for a vast network of investors who can arrange growth capital for your business, rely on Solomon RC Ali Corporation for our business consulting services.

We help businesses find growth capital when traditional lenders and banks fall short. You can reach us by phone or email.