What is Angel Investor?
763 reads · Last updated: December 5, 2024
An angel investor provides initial seed money for startup businesses, usually in exchange for ownership equity in the company.The angel investor may be involved in a series of projects on a purely professional basis or may be found among an entrepreneur's family and friends. The investor's involvement may be a one-time infusion of seed money or an ongoing injection of cash to get a product to market.Angel investors aren't usually in the loan business. They're putting money into an idea they like, with the expectation of a reward only if and when the business takes off.
Definition
Angel investment refers to the provision of early-stage seed funding to startups by individual investors, usually in exchange for equity in the company. These investors, known as angel investors, can be professional investors or friends and family of the entrepreneur. Their involvement can be a one-time injection of funds or ongoing support to help bring a product to market.
Origin
The concept of angel investment originated in the early 20th century in the United States, where wealthy individuals funded Broadway productions. Over time, this concept expanded to support startups, particularly in the tech industry. In the 1990s, with the rise of the internet, angel investment became a significant part of entrepreneurial financing.
Categories and Features
Angel investment can be categorized into individual angel investors and angel groups. Individual angel investors are typically wealthy individuals interested in specific industries and willing to fund startups. Angel groups are organizations composed of multiple investors who collectively invest in startups. Features of angel investment include high risk, high return potential, and non-financial support such as industry experience and networking.
Case Studies
A typical case is Andy Bechtolsheim, an early investor in Google, who provided $100,000 in seed funding in 1998, which later yielded substantial returns. Another example is Jeff Bezos' parents, early investors in Amazon, who invested $245,000 in the company's early days and eventually reaped billions in returns.
Common Issues
Investors may face issues such as evaluating the potential of startups, determining a reasonable investment amount, and handling the risk of investment failure. A common misconception is that angel investors only provide funds, whereas they may also offer strategic guidance and industry resources.
