Angel investors are high net worth individuals who privately fund small but promising start ups in exchange for equity or ownership in the company, usually in the form of a convertible loan.
Unlike venture capitalists who pool money from different investors and place them in a centrally managed fund, angel investors typically use their own financial resources to inject fresh capital into a new company to help it get off the ground.
On the other hand, it is not uncommon for angel investors to put their funds together by building an angel network, or to back up fledgling entrepreneurs through emerging digital platforms such as crowdfunding.
It is generally believed that angel investors provide the main source of large-scale capital for many startup companies. According to the recent ACA Angel Funders Report, individual angel groups invest about US$2.5Million annually in 10-20 new ventures in North America alone, fueling innovation and job growth in multiple industries — particularly in the fields of biotechnology, healthcare technology, e-commerce, green technology and financial technology.
Furthermore, angel-funded companies have raised US$2Billion in total capital from multiple sources, multiplying their initial angel investments about seven times.
This affirms an earlier study from the Harvard Business School, illustrating how angel-funded firms are significantly more likely to survive and to eventually raise additional financing outside the angel group.
Research has shown that the success of the angel investment is “highly predicated by the interest level of angels during the entrepreneur’s initial presentation and by the angels’ subsequent due diligence.”
Detailed legal due diligence is a must for any angel investor. Not only does it ascertain compliance to legal requirements on the part of the target investee, it also helps establish – and if necessary, circumvent –any potential issues and risks associated with the startup that may negatively impact the investment.
As your strategic partner, Veritas Global offers you sound and sensible advice in approaching new investment opportunities. Armed with a business mindset that focuses on prudence and profitability, we help you make decisions that are more informed, more confident, and more rewarding.
What makes an angel investor?
The term “angel investor” is frequently used to refer to high net worth individuals who have gained an accredited investor status – a privilege that is gained by satisfying specific legal requirements that would prove that these investors are financially sophisticated and have a reduced need for protection by regulatory bodies.
To be clear, however, while angel investors are typically accredited investors, not all accredited investors decide to capitalize as angels.
Some ultra-high net worth individuals also become angel investors by way of family offices, which have proven to be significant sources of funding for high-potential startup investments.
And since angel investors are often successful businessmen who have created their own companies or have held top leadership positions in large corporations, they also bring with them a wealth of experience that can provide strategic advice and a stellar network of business contacts to the budding enterprise they wish to support.
Angels need protection too
While angel investors could get very enthusiastic about supporting fresh, innovative businesses whose vision resonate with theirs or who are primed towards revolutionizing an industry that they feel passionate about, they also have to remember that angel investments are quite high-risk and should preferably represent no more than 10% of their individual investment portfolios. They should also prepare a well-strategized exit plan to gain the most out of their initial investment as it grows over a prescribed period of time.
Veritas Global provides angel investors with the quality of legal guidance and protection that creates a strategic advantage in the complex world of early-stage investments and entrepreneurial finance.
Whether you are investing on your own or as part of an angel network, you have to ensure that you are represented by a highly qualified legal counsel with years of hands-on experience in working with private investors. More importantly, by a team that approaches your legal needs with a business mindset, like Veritas Global.
From helping you identify favorable investment opportunities, to doing due diligence, reviewing and negotiating your term sheets, and structuring your exit event, Veritas Global will work closely with you to help you reach your business objectives in the most empowering, efficient, and rewarding way.