What Is An Angel Investor and What Are Its Functions? Explained

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RSPJ.co.id – Angel Investor: You may have a business in mind, an innovative idea that has not materialized and that you consider to have high potential, but the main obstacle is that you do not have enough capital to develop it. Well, this is just the right time to talk about angel investors, who are precisely looking for new projects. 

Below we will tell you all the details: who are these financial figures, what type of businesses they invest in, what their functions are, how to find them and some examples of famous entrepreneurs who carry out this practice. 

What is an Angel Investor?

Angel Investor

An angel investor, also called an angel investor or business angel, is a person who decides to invest their own money in an emerging company, in its initial phase, with the possibility of obtaining a high return on investment. With this contribution, he helps the startup face various risks.

Angel partners are generally successful businessmen who have extensive business knowledge, as well as vast wealth. In fact, this name comes from the rich people of Broadway who financed the producers of plays in the center of the city, like angels fallen from heaven. Even this concept can also be related to patrons within the art world. 

However, the work of business angels is not a question of philanthropy or donations, because they ask in exchange for shares of the start-up company where they have agreed to invest. The percentage ranges from 5% to 10%, in addition, another of the conditions to invest is usually belonging to the organization’s board of directors to make important decisions. This is a fair trade, considering that they are also putting large amounts of money at risk, when they could put it in a safer place. 

What Kind Of Companies Are Interested In An Angel Investor?

It is worth mentioning that angel investors usually place their money in startups, which are not the same as a small or medium-sized company (SME). To clear this up, so let’s see what the differences are:

  • The startup is a new company that presents an innovative business idea that has not been applied so far, which relies heavily on technology to function. While an SME is a company with a business model that has already been tested and, therefore, other companies have already reproduced, so it is somewhat more stable in terms of the internal processes under which it develops.
  • The startup represents a scalable business model that rapidly multiplies its income and can be taken to various geographical areas. On the other hand, for SMEs, growth is regularly slow and does not necessarily use technology. 

An example of a startup is the company Uber that offers private transport services through a mobile application and whose model is used in various countries. While an example of a SME can be a local restaurant.

What Does An Angel Investor Do?

This investor figure is the key connection to enter the entrepreneurial ecosystem of a sector. Next we will show you what are the actions carried out within this association with startups. 

1. Invest capital

As we already mentioned, the angel investor is the one who makes a considerable contribution of money to an emerging company that is in the seed stage, which is where the idea is developed and it has to be proven that the business model is profitable.

2. Provide advice

Since he has vast experience in the business area, this angel helps entrepreneurs clarify doubts regarding business management and becomes a mentor or project guide; under the slogan that both parties agree, there is a cordial relationship and both parties win.

3. Share network of contacts

With his career in the business world, the investor also has a list of essential contacts for the development of a business, whether local or international. So if at any time an extra boost is needed, this will be of great help, it will even serve to obtain future financing for the venture.

4. Reduce risks

When a startup is in the seed phase, it means that it has more expenses and operating costs than the income it will generate; this is what is known as the Valley of Death. So a business angel provides financial support during this crucial period for the business to move on to the next stage of growth.

As we can see, with the support of an angel partner, a start-up company is more likely to become a profitable model and not fail along the way. Once the equilibrium point ( break even ) has been reached, where there is a balance between the output and input of resources, it is when the venture capitalists invest, only they manage third-party funds and are specialists in promoting a business and then sell it for millions. 

How to find an angel investor

There are two options: the angel investor looks for a startup or the startup looks for the business angel. In the first case, the angels regularly carry out due diligence, which consists of hiring consultants to carry out an investigation of the emerging companies in which they can invest safely and with a high return on investment. For this they take into consideration: 

  • The activities it carries out and the conditions of the market in which it participates.
  • Financial, legal and environmental status.
  • Future business opportunities.
  • The estimated value of the company, including assets and liabilities.
  • The level of innovation of the business idea.
  • The management capacity of the work team.

In the second case, entrepreneurs are the ones who go to business angels, either through first-line contacts or because they have found them in an investment network via the Internet. It is also important that they conduct research on the investment partner before contacting them, to verify that their experience is compatible with the business idea, and to prepare a well-informed   pitch or presentation speech.

Whether or not a proximity investor decides to participate in the initial phase of a startup will depend on the above. The amounts can range from USD 10,000 and reach millions of dollars. This is subject to the business model and the country where it is established. Next we show you which are some of the most successful business angels.

The 4 most famous angel investors

1.Marissa  Ann Mayer

She is a computer engineer and was the first woman to join Google’s engineering department. She was responsible for the design of the search engine’s home page, and soon rose through the company to become the vice president of search products and user experience. She later switched to Yahoo! and her tenure ended when the company was sold. 

Mayer is considered one of the most prominent business angels in Silicon Valley. She has participated in the finances of Walmart, Minted, Airtime, uBeam, among others. 

2. Jeff Bezos

Until a few years ago, Jeff Bezos was in the top 5 of the richest men in the world. He studied computer science and electrical engineering, worked in various companies, but found success when he decided to start his own business: an online book store. This would later become Amazon, one of the most valuable companies today. 

He was one of Google’s angel investors. In addition, since 2005 he has invested in early-stage companies through his founding of Bezos Expeditions. 

3. Helena Torras

She is a Spanish investor and studied business administration. She began her career as a consultant at the renowned Big Four audit firm and that is how she began to stand out in the business world. She is also the founder and CEO of B-won, an app specializing in women’s health, which has thousands of users from at least ten countries. 

He is a prominent figure in Europe and is part of the Board of Barcelona Tech City, he has also been an angel investor of numerous technology startups through Pao Capital.

4.Peter Thiel

Born in Germany, but a naturalized American, he studied philosophy and law. After practicing as a lawyer he began to excel in business. He soon realized that until now there was no effective way to make payments on the internet and online commerce was beginning to grow, so he focused on technology and web development. So in 1998 he founded Confinity; along with Max Levchin, Luke Nosek and Ken Howery, a company that would later become PayPal.

This was how he made a great fortune, in addition to creating other businesses. Peter Thiel was one of Facebook’s angel investors, one of the first people to trust in the idea of ​​this social network. He has also invested in Uber, Spotify, Airbnb, SpaceX, DeepMind, and more. 

As well as these figures, there are numerous investment partners who are looking to put their money in profitable companies. We hope this article has clarified what an angel investor is and why it is so important within ventures, especially for startups.

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