Ever wondered how a small business can gain financial support other than a loan? Angel investors are affluent individuals who invest their personal wealth into a promising business venture and demand equity in return. Unlike a venture capital firm, an angel investor invests their personal funds, demonstrating individual commitment and financial involvement. However, they have a clear exit strategy to reap profits through an acquisition or public offering.
Read on to learn more about the angel investor meaning, types and advantages.
What is an Angel Investor?
An angel investor is a private investor who uses their personal net worth to finance a business venture and demand equity in return.
Usually, they are wealthy professionals who provide business finance to start-ups with potentially higher return rates. Many aspiring entrepreneurs with business ideas turn to angel investment for start-up funds.
Origins of Angel Investors
The term ‘angel’ originated from Broadway Theatre. During this period, wealthy individuals financed theatrical productions. Initially, William Wetzel from the University of New Hampshire used angel investors. He founded the Centre for Venture Research and gained education about how business owners can collect capital. That is how he coined the term and purpose of ‘angel investment’.
During a start-up's initial phases, an angel investor bridges the gap between capital sourcing and self-financing. In most situations, these investors put their money in diverse but familiar industries, making them an excellent networking source for SME owners.
Sources of Angel Funding
Unlike venture capitalists, angel investors source funds from their net worth and invest them in strategically managed funds. In India, angel investors represent individual investors.
Also Read: How To Get Difference Types Of Business Funding In India
Who can be an Angel Investor?
Any wealthy individual aiming to offer funding to start-ups can become an angel investor. They can actively support a business if they encourage innovation and desire engagement.
Since most angel investors have been entrepreneurs themselves in the past, they bring first-hand business experience to the company. That means anyone with the willingness and financial means to finance a start-up can be an angel investor.
Types of Angel Investors
Angel investors can be of various types, each with unique skills, investment standards, and preferences. After understanding what is an angel investor, here’s a look at their types:
- Individual Investors: Individual investors are private investors who finance new businesses with their own money. Generally, these are experienced business owners in specific fields who bring their interests and knowledge along with the funds.
- Serial Entrepreneurs: This type of angel investor consists of experienced entrepreneurs who have previously established and sold businesses. They use their finance to support ventures at an early age while supporting them with mentorship through their experiences.
- Venture Capitalists: Venture capitalists are professional investors who manage funds collected from multiple sources. They invest in companies with significant growth potential, often at later stages. They usually invest substantial amounts.
- Strategic Angels: These investors invest in firms primarily aiming to profit and achieve strategic objectives. Their primary investment motivation is an interest in the company’s technology or industry. They gain access to innovative technologies, market intelligence, and innovative products through investment.
- Groups: Groups of angel investors are called Angel Investor Organisations, networks, or syndicates that jointly work to identify investment opportunities. Investors in these groups combine their resources to invest in new companies jointly.
Also Read: Methods To Get Funds For Startup
Difference Between an Angel Investor and a Venture Capitalist
Venture capital firms are private firms that pool money from other investors and invest the accumulated capital in a start-up or small business. On the other hand, angel investors are successful people investing their own money in different companies.
Most venture capitalists invest in businesses at a later stage when they establish profitability. Conversely, angel investment is the best funding option for start-ups and companies at the early ideation or pre-revenue stage. However, one drawback is that depending on the investor's financial capacity, the investment amount can be higher with venture capital than with angel investment.
How to Find the Best Angel Investors?
When looking for angel investors, one may begin searching close to their location. Most investors prefer actively participating in business activities, and proximity allows them this engagement. Besides, target industry associations and platforms to connect investors with entrepreneurs are great places to find angel investors.
Finally, social media platforms are excellent sources to find potential investors. A business owner seeking finance may conduct a search based on the local area and discover investors in proximity.
Also Read: Funding Options for Small Businesses and Start Ups
Advantages and Disadvantages of Angel Investment for a Business
Here are the advantages and disadvantages of angel investment for a business:
| Advantages | Disadvantages |
| Financial Support: The start-up may approach investors for additional contributions if it needs more capital. Even if the company cannot qualify for loans, it may get financial support from an angel investor. | Authority Sharing: Most angel investors in India demand an ownership stake. Sometimes, the company seeking finance may end up selling more stakes than intended. Diluting ownership will make fundraising challenging in the future. |
| Connections: Angel investors are well-connected in the industry and may connect the entrepreneur to new business partners, clients, and finance options. | Time and Effort: The process of seeking angel investment is lengthy, time-consuming, and requires extensive paperwork. |
| Expertise: Most investors have sufficient industrial knowledge, based on which they may guide the start-ups. | Chances of Rejection: Even with exceptional growth potential, funding a new business is risky, and investors may reject the investment. |
| Extended Support: The position might encourage investors to contribute maximum and raise funding. | Loss of Control: Most angel investors seek substantial roles in the company’s decisions, reducing the owner’s control. |
| Long-Term Guidance: Angel investors usually stay committed to a company for the long term, leading to additional cash injections and ongoing support in the future. | Risk of Ineffectiveness: Engaging with an inexperienced angel investor carries the risk of suboptimal advice or over-involvement in day-to-day business operations. |
Also Read: Crowdfunding: Meaning, Types, Sites And How It Works?
How is a Personal Loan Helpful as an Investment?
After understanding the disadvantages of angel investment, many business owners may look for an alternative finance option. An instant Personal Loan from Hero FinCorp can be helpful as an investment in business for many reasons, including the following:
- No profit sharing
- No compromise on authority and business decisions
- No collateral requirement
- Easy repayment over a flexible tenure
- Competitive interest rates
- Freedom to enjoy 100% business profit
- Instant approval and disbursal
- 100% digital loan application procedure
Also Read: Finance Options For Young Businesses
Steps to Apply for a Personal Loan to Use as an Investment
Here is how to apply for an instant Personal Loan from Hero FinCorp to use as an investment:
- Visit the Hero FinCorp website or download the personal loan app on your smartphone.
- Click the ‘Apply Now’ button.
- Fill out an online application form.
- Scan and upload the necessary documents.
- Wait for the verification process to complete.
- Review and accept the loan offer to get immediate disbursal.
Also Read: 50 Business Financing Terms You Need To Know As An Entrepreneur
Conclusion
Angel investors have become the key funding options for small entrepreneurs in the early stages of business establishment. However, the funding option has pros and cons that may or may not suit the business owner's needs and preferences. That is when they can apply for an instant Personal Loan to invest in the business. This funding option does not demand any profit or equity in the company, and the owner retains complete control over the business. Hero FinCorp offers instant Personal Loans of up to Rs 3 Lakh that entrepreneurs can borrow to finance their start-up and repay the cost in easy EMIs.
Frequently Asked Questions
1. How do angel investors get money?
Most angel investors source money from their own personal wealth and net worth.
2. Who is the father of angel investing?
William Wetzel from the University of New Hampshire was the father of angel investing.
Disclaimer: The information provided in this blog post is intended for informational purposes only. The content is based on research and opinions available at the time of writing. While we strive to ensure accuracy, we do not claim to be exhaustive or definitive. Readers are advised to independently verify any details mentioned here, such as specifications, features, and availability, before making any purchasing decisions. Hero FinCorp does not take responsibility for any discrepancies, inaccuracies, or changes that may occur after the publication of this blog. The choice to rely on the information presented herein is at the reader's discretion, and we recommend consulting official sources and experts for the most up-to-date and accurate information about the featured products.
