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The world of angel investors has experienced rising popularity in recent years. In the first quarter of 2022, seed and angel deals reached a value of 10.3 billion U.S. dollars.
Whether you're considering becoming an angel investor or are an accredited investor wanting to learn more about joining a like-minded group of goal-driven investors, this guide will give you the information you need to get started.
By the end of this article, you'll be able to answer the following:
- What is an angel investor?
- What does an angel investor do?
- What does it mean to be an angel investor?
- What is an angel network?
Let's begin by taking a closer look at a comprehensive angel investor definition.
What Is an Angel Investor?
An angel investor – also known as a business angel, impact angel or private investor – is a high-net-worth individual who provides financial backing for startups and entrepreneurs. Their capital injection can make all the difference for a small business struggling to get its product or service to market.
So, who are angel investors? Accredited angel investors must have a minimum net worth of $1 million or an annual income of at least $200,000 individually or $300,000 jointly with a spouse or spousal equivalent.
What Does an Angel Investor Do?
Angel investors: how does it work? An angel investor will typically use their own money to fund a startup or entrepreneur, often in exchange for equity. The funds may be a one-time investment or an ongoing injection to support the business.
The amount of funding varies depending on the perceived risks and potential rewards associated with the investment. The angel may sell their stake in the company later for a profit – usually when the company goes public or is sold to another organization.
Though there is potential for financial returns, all investments are rooted in some level of risk, which accredited investors accept when they pursue an opportunity. Startups that receive equity seed funding via angel investors assume less risk because they aren’t obligated to repay the angel, while angels could very well lose all their money if the business fails.
What Does It Mean to Be an Angel Investor?
Being an angel investor goes beyond providing financial aid. In addition to essential funding, angel investors may offer their experience, knowledge and networks to help entrepreneurs grow their businesses.
Some angels, otherwise known as angel advisors, actively mentor startup teams, while other angel investors take a more hands-off approach. However, one survey shows that investors who get involved with the company may see higher returns than those who don’t.
The angel investor’s return on investment (ROI) will depend on the company's success. Angels must be patient investors who understand that a startup may take several years to become profitable.
What Is an Angel Network?
While an individual angel investor can offer essential funding for a startup, a group of angels can provide even more value. That’s where an angel network comes in.
An angel network is a group of individuals who pool their financial and professional resources to support small business ventures or entrepreneurs. These networks typically have a formal structure with specific processes and criteria for selecting companies to invest in.
Some angel networks are stage- or industry-specific, while others take a more general approach. Their goal is the same as any individual angel investor: to find investments that have the potential to generate returns for the investor, the business and the wider world.
Applying to an angel network allows investors to expand their resources while making an impact on the businesses they invest in. For entrepreneurs, an angel network can provide access to more capital and opportunities for mentorship, strategic programs and advice.
Angel investors typically look for businesses with high growth potential to generate a significant ROI over time. However, finding and screening these companies can take time and effort, especially if you want to invest internationally or in emerging markets. Angel networks help angel investors access a pipeline of promising investment opportunities that they may not have found elsewhere.
Create an Impact By Applying to Renew Capital Angels™
Renew Capital Angels™ is a community for active and accredited investors looking to invest in Africa's future. We believe investing is the new philanthropy and see Africa as the investment opportunity of our lifetime.
Our members are dedicated to helping entrepreneurs build small and medium enterprises that positively impact the continent through private sector growth. Discover how Renew Capital Angels™ are working with African entrepreneurs to ignite change by applying to the network.
Renew Capital Angels members must be accredited investors per the U.S. Securities and Exchange Commission definition. Investments with Renew Capital are speculative in nature and involve a high degree of risk. The Renew Capital Angels invest in companies located and doing business in sub-Saharan Africa. Investors should understand and be willing and able to handle the risks of investing in such frontier markets, which are more significant than the risks associated with investing in securities of U.S. companies or in other developed countries and include the risk of total loss of an investor’s entire investment.
