The Startup Funding Series: Angel Investors
Last week, we announced the launch of the Startup Funding series. This is a guide for young entrepreneurs exploring funding routes for their startup.
The first option that we’ll be discussing is angel investment.
Angel investors generally tend to be high-net worth individuals who will provide an initial injection of cash for a startup business. Unlike a VC firm, these investors are less focused on the possible profitability of the business, but rather, they dedicate their attention to getting a business off the ground.
As angel investors usually offer funding at the very beginning of a business journey, they will often ask for an equity stake and/or a position on the board of directors in exchange for their money.
A business can have multiple angel investors who each give a percentage of the total funding required, and hence each take a smaller percentage of the company, or one investor who puts up all the money themselves.
The benefits of an angel investor:
An early-stage cash injection can be absolutely critical in founding a business, and working with an angel investor will allow you to overcome any initial cash flow hurdles and progress quicker to becoming profitable
An angel investor is an individual, so you can build a very personal relationship, compared to other options such as private equity or venture capital. Some angel investors will even offer mentorship or business advice.
Angel investors put up their own cash and as such can be more flexible and less risk-averse than VC firms or private equity.
The potential hurdles with an angel investor:
Angel investors will look for a return on their investment within 3-5 years. If your business is not profitable in that time, you may have to pay a percentage of the initial stake back to the investor.
An angel investor sits on your board of directors and owns a stake of your company, so has the right to make business decisions, which can include hiring and firing privileges. If you’re someone who wants to keep absolute control of your business, you may need to seek a silent partner, which can be harder to find.
You will have to give away a percentage of your business to an angel investor. This could be anywhere from 10-49%. (Angel investors will usually allow business owners to retain the 51% controlling stake in the business.)
If you’re considering angel investment for your business, Triple Seven Group are currently on the hunt for their next investment, so please get in touch by emailing CEO Simon Taylor at email@example.com or calling 020 3371 0121.