Funding can be one of the trickiest parts of starting a new business. You need money to get it off the ground, but, generally, the money only starts pouring in once the business has established itself, and a strong customer base. Unfortunately, not everyone can self-fund their start-up, no matter how passionate they are about it.
There are, of course, a lot of different ways to procure funds for a new business, and each offers their own unique pros and cons. Investors are a popular group to turn to, but it's vital that you go into the process of obtaining funding with your eyes wide open. Investments never come without some strings attached, after all, and the only safe way to do it is by working closely with your corporate solicitor to review the bigger picture.
But what about angel investors? The name itself suggests they are your best bet when it comes to securing funding without losing a significant stake in the business. Here's what you need to know.
What is an angel investor?
An individual with a high net worth, looking to invest capital into a business. They stand to benefit from a minority stake, and will fund the business either through a one-off lump sum, or through regular injections of cash.
Why work with an angel investor?
It's a great way of funding a start-up that needs that initial cash injection, or the support of smaller, regular instalments of cash.
The most significant advantage to working with an angel investor is that the investment itself doesn't represent a debt. Neither you nor the business will ever need to repay the angel investor, as their profit comes from their stake in the business. Most angel investors will plan to exit the business, by selling on their share, at some point in the future, but they are often open to being flexible with entrepreneurs and accommodating the needs of the growing business.
Angel investors rarely get involved in the day-to-day workings of the business. They can take on an advisory role, but rarely join the board or become entangled in management.
There are also a lot of benefits to working with someone who has already developed a strong network in your industry. The value this sort of insight holds for new businesses and entrepreneurs cannot be overstated.
What's the difference between an angel investor and a venture capitalist?
An angel investor is not the same as a venture capitalist. The funds put forward by angel investors come from their personal wealth, but the most significant distinguishing characteristic is that angel investors invest into new, fledgling companies. These investments are risky, and so tend to represent only a small percentage of their investment portfolio.
Venture capitalists, by contrast, have certain requirements regarding projected growth and capital base. The businesses they invest into tend to be more established, and they tend to take a seat on the board in order to oversee more of the business's day-to-day workings.
