Angel Investing is one of the many ways you can get funding for your business, to scale up to your desired metrics.
In a country like Nigeria, running a business isn’t as easy as it has been made to look. A lot of businesses fail and a lot of ideas die due to a lack of adequate funding.
Although there are different potential funding options for new businesses and ideas, from business loans to crowdsourcing and a few others, many people do not know so much about these opportunities.
What exactly is angel investing, and how does it work?
To prepare you to approach angel investors or become one yourself, this article aims to enlighten you on the basics of angel investing.
What is Angel Investing?
Angel investing is the practice of making financial investments in early-stage or start-up enterprises in exchange for stock ownership. It is a high-risk investment that could yield large returns or losses.
Angel investing is a long-term investment strategy, and the success of an investment depends on the growth and success of the company.
Finding the ideal investment opportunity is the first step in the angel investing process. This may entail doing research on potential investments, going to industry events, or using personal networks.
Once an opportunity is identified, angel investors conduct due diligence to assess and determine the risk involved in the investment, after which they negotiate the conditions, amount to invest, equity stake to be received, and the terms of the agreement.
Who is an Angel Investor?
An angel investor is an individual or a small group of investors who provide capital to early-stage companies in exchange for equity ownership.
Angel investors frequently fund start-up businesses with a distinctive product or service, a solid management team, and a clear path to profitability.
Successful business people, corporate executives, or high-net-worth individuals are frequently those who seek to diversify their portfolios by funding potential startups.
Angel investors often provide their portfolio firms with more than just money; they also offer strategic support, mentorship, and guidance to help them expand.
How to Find an Angel Investor
1. Personal Network
Ask your personal network of friends, family, and coworkers whether they know of any angel investors or if they would be interested in investing themselves.
2. Online Platform
There are several online venues that link entrepreneurs with possible angel investors, such as AngelList and Gust. These platforms require creating a profile and a pitch deck, and they could also charge a fee to access their investor network.
3. Industry Events
Attend industry gatherings to meet possible angel investors and present your business idea. Examples include start-up conferences and pitch events.
4. Incubators and Accelerators
Consider enrolling in a startup support and resource program like an incubator or accelerator. These initiatives frequently have links to angel investors and might be able to put you in touch with them.
5. Professional Organisations
Join professional organizations, such as the National Angel Capital Organization (NACO) and the Angel Capital Association (ACA), which provide resources and connections for startups looking for angel investment.
It’s crucial to note that getting an angel investor might be a difficult and time-consuming procedure. To entice potential investors, you must have a polished pitch deck, an understandable business plan, and an engaging narrative. Before you discover the ideal angel investor for your firm, you might need to give multiple pitches.
Angel Investor vs Venture Capital
| Angel Investor | Venture Capital |
| Invests in early-stage start-ups. | Invests in later-stage startups. |
| Usually, a single person or a small group of investors. | Institutional investors e.g, venture capital firms. |
| Less capital is provided in comparison to venture capital firms. | Provides a bigger amount of capital investments. |
| More active with the businesses in their portfolio | Less involvement with the business, but more operational support |
| Industry agnostic: Does not have industry speciality | Typically focus on a particular industry |
| Invest with a longer time horizon | Have a shorter time horizon for investments |
| Aim for equity growth and a good exit. | Seek high returns on investment within a set time frame |
How does an angel investor make money?
Angel Investors make money by investing in early-stage start-ups in exchange for equity ownership, with the hope that the company will grow, leading to an increase in the value of their equity stake. Some angel investors also make money through dividends from companies they had previously invested in.
Is angel investment a good investment?
Angel Investment could be a good investment for those who understand the risk involved and have the financial capacity to withstand possible losses.
What is the average return on investment for angel investment?
The rate of return on an angel investment can differ based on variables such as the sector, stage of the business, the calibre of the management team, and general market conditions.
How long does it take for an angel investor to make money?
Angel investments are typically made in early-stage businesses that are still developing their markets and expanding their operations. The company may not become profitable for several years, and it may take even longer for the angel investor to see a return on their investment.
Who can be an angel investor?
Accredited investors with significant financial means, business experience, and knowledge are often eligible for angel investing.
Bottom Line
Angel investing can be an exciting way for you to invest in promising startups, with the potential for high returns. However, it is important for you to do your due diligence and get the required knowledge, needed for you to venture into angel investment.
To be a successful angel investor, one must not only have the financial means to make an investment but also the business knowledge and experience necessary to mentor and provide strategic support to portfolio firms.
