Articles in the Series:
- Pros and Cons of Using Own Money
- Pros and Cons of Credit Cards
- Pros and Cons of Borrowing from Family and Friends
- Pros and Cons of Bank Loans
- Pros and Cons of SBA Loans
- Pros and Cons of Angel Investors
- Pros and Cons of Venture Capital
- Pros and Cons of Crowdfunding
- Pros and Cons of Business Plan Competitions
- Pros and Cons of Supplier Credit
Pros and Cons of Angel Investors
Angel investor is an individual who opens up his or her wallet to provide funding to a startup company that’s in need of a financial boost. In many cases, these investors often provide money to entrepreneurs in exchange for a predetermined amount of equity ownership in the business at-hand or for convertible debt.
Advantages of Angel Investors
- Angels are a good fit for many startups, including early stages, with typical investments are between $25,000 and $1.5 million.
- Angel investors could be anywhere: they could be your neighbor, a contact or a member of angel investor groups or associations.
- Business angels make investment decisions quickly with due diligence work done fast.
- Investment also usually comes in the form of a lump sum.
- Angels will not require collateral such as personal assets. However, check how the angel investor will want to be repaid, as some will prefer to make straight loans at slightly higher rates than banks, while others want to be repaid in stocks.
- Business angels are invested in your business’ success and may be willing to mentor you. They can help you explore new ideas and help develop your business acumen. They may even want to be part of your business’ management.
- They can help open doors to you by introducing you to potential customers and other investors.
Disadvantages of Angel Investors
- It can take a while to find suitable angel investors.
- Angel investors expect a high rate of return – often 25 percent or more.
- They expect you to protect their money and deliver handsome returns for their investment. As such, they will aggressively press you towards the direction the business should be going or decisions you may not agree with.
- Angel investors may want you to meet certain business goals or follow certain business practices. As a result, they may have a different view of what your company should do and you might find yourself wrestling with your financier over key company decisions.
- They are not suitable for investments below $10,000, including home-based business.
- Be prepared to give up a share of your business.
- less structural support is available from a business angels than from an investing company
- There are some investors who will take advantage of you, especially if you have no funding experience. Be sure to protect yourself and find an experienced adviser to help you during the process.
For more information, read How to Find an Angel Investor for Your Business
- 5 Strategies to Raise Capital for a Small Business
- How to Start a Business with Bad Credit
- How Angel Investors Can Benefit a Small Business
- Buying a Business with No Credit and With Very Little Money
- Why You Can’t Get a Bank Loan for Your Small Business