Angel investor is a high-net-worth individual who invests in small promising start-ups, typically in exchange for ownership equity. Angel investments often help start-ups get through the difficult early stages when most investors are not yet willing to back them.
Calling financial supporters “angels” comes from Broadway theatre where wealthy individuals used to give money for theatrical productions. William Wetzel, the founder of the Center for Venture Research of the University of New Hampshire, first used the term in the context of investments.
Angel investors are often retired entrepreneurs, who may be interested in investing for other reasons than pure capital returns. For example, an angel investor might wish to keep up with current innovations or mentor the younger generation of entrepreneurs. They generally invest their own money, unlike venture capitalists who use pooled funds from various investors.
Angel investments are very risky. A large number of early-stage start-ups fail which means that the investors lose their invested money. This is why professional angel investors seek investments that would return ten or more times their original investment within a relatively short time. To achieve this, they look for a defined exit strategy, such as an initial public offering (IPO), or acquisition of the company. Although this makes angel capital an expensive source of financing, other investors are usually not willing to invest in pre-profit stage start-ups.
- angel funder
- business angel
- informal investor
- private investor
- seed investor