What are the pros and cons of angel investors?
Angel investors have come to be a very big part of the startup ecosystem. They can be highly desirable connections for startup entrepreneurs seeking funding. Many hyper-successful entrepreneurs end up becoming angel investors themselves.
However, before you go rushing in to create a pitch deck for them, stalk them and ask for money for your startup business, it’s smart to know what the pros and cons of angel investors are.
What Are Angel Investors?
Angel investors are typically individuals who simply have the money to help fund startup businesses. They can be professional investors. Though they may also simply be professionals who have the cash and are excited about putting their capital into this asset class and helping others get their new ventures off the ground.
This can include university alumni, doctors, lawyers, CEOs, high income earning tech workers, and other entrepreneurs. Including those who have recently had successful exits of their own.
While angel investors often work alone, they have also increasingly been teaming up as angel groups to spread risk, benefit from the efficiency and gain access to deal flow.
The Pros Of Angel Investors For Startup Fundraising
Angels are one of the first stops on the way to the big money
After raising your friends and family round, angel investors are typically your next round before moving onto VC and strategic startup capital.
You’re unlikely to leap right to venture capital funds. It does happen. Though angels write certain sized checks, based on early stages.
This is the money you need to seriously get started, build out your team, prove your concept and hone your business model. All before you are ready to put real liquidity in to scoop up the market and go really fast.
Easier To Raise Money From
The good news is that angel investors can be relatively easy to raise money from.
Angels are more willing to take risks than other types of investors, like big funds and banks. In one sense they have to at this stage. They also understand that investing so early has the potential to create the biggest gains and wins. Not all will pan out. Though the wins can more than make up for the losses.
It’s not unusual for angels to fund you simply based on your business plan and who you are as the founding team. This is even easier if you have a personal relationship already established with them.
Angels Are Easier To Work With
Not only can angel investors be less demanding when it comes to pitching, but getting from a yes to money in the bank can be a lot easier too. You may not have to jump through all the due diligence hoops and processes and hundreds of people involved that you will deal with later on.
If you ever have to pivot or things are going wrong, angels may be more understanding and easier to work with too. On the DealMakers Podcast, I’ve even interviewed founders who have failed on their first startup, and still got their angels to reinvest in a new venture or allowed them to roll the money over into a new project.
Introductions To The Next Level
Experienced angel investors will already have a network of more sophisticated investors. They should know the private equity, VC partners and strategics who may want to fund your next round.
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