February 21, 2024

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Look In The Business

Understanding the worth of an angel investor to a business

Angel Investor Definition and How It Works

Wealthy private investors known as “angels” specialize in funding start-up companies in exchange for stock. Angel investors use their net wealth instead of venture capital firms, which employ an investment fund. Angel investors may also be more tolerant of entrepreneurs and willing to give lesser sums of money over a more extended period than venture capitalists. However, they expect to see an exit strategy at some point, often in the form of a public offering or an acquisition, so that they can keep their earnings. 

Having an angel investor means your company won’t have to pay back the money because you’re exchanging ownership shares for cash. Angel funding is typically only given to companies that have passed the startup stage. These businesses have shown signs of profitability but still, require funding to expand or develop new products. An angel may be very motivated to support your success through mentorship or by providing specific management assistance because their financial interests are at stake. 

Several people opt to be Angel investors to invest in the business and accomplish their goals. Individuals such as David Wu have taken the journey of being angel investors. David began investing as an angel investor in 2008 and joined the Band of Angels, the oldest startup fundraising group in Silicon Valley. He later rose to the position of Internet Committee Chair on the group’s transaction screening committee and has since made over 50 investments. 

David joined Maveron as a partner in 2012 to assist in finding new consumer tech investments, particularly those in the nexus of entertainment, social, and gaming. Maveron invests in consumer-only firms. David oversaw Maveron’s investments in WaveXR, Illumix, Booster, Modern Fertility (bought by Ro), August Home (purchased by Assa Abloy), inbox (acquired by BIC), and Eargo (NASDAQ: EAR) and sat on the boards of each organization. 

Such angel investors are valuable assets to the business due to their significant contributions. 

  1. Coach or Mentor

The most substantial influence on the venture may come from an angel acting as a coach, yet they may not hold a controlling shareholding. Entrepreneurs will depend on this angel for ongoing advice and insight on whether they make a financial commitment.

  1. Team Member

Depending on the stake, an angel investor may contribute money to some businesses and play a full- or part-time role in an entrepreneurial company. Another possibility is for an angel to play a full- or part-time position in exchange for equity and another payment type rather than investing. 

  1. Reserve Force

Angel investors prepared to serve as a reserve force will contribute money and are available to assist the business owner when necessary. Entrepreneurs with a backup workforce benefit from funding and on-demand access to the knowledge of angels.

  1. Silent Investors

Silent investors often need more interest in a business. Instead, they invest, hoping to see a profit eventually. Silent investors give business owners access to capital, but they miss out on the chance to benefit from the angel’s expertise and experience.