How Angel Investors Work

Do you have an excellent business idea that you’ve just been waiting to take off the ground? Do you have a concept for an app that is going to be the next big thing and take off in ways that nobody can even imagine? 

Sure you do; you and a million other people! The biggest roadblock, though, is money. That’s always the catch, isn’t it? 

There’s a variety of ways to raise the capital you need to get your exciting venture off the ground, and one of these is to use angel investors.

Angel investors are typically affluent individuals who already have a substantial amount of capital that they are looking to invest in start-up businesses. 

If you want to approach an angel investor with any hope of getting them to drop some sweet cash on your idea, then you’re going to need to know a bit about them. 

Here are some things to remember, when it comes to dealing with angel investors...

Angel investors look for businesses that interest them

When a person reaches a point in their life that they become an angel investor, then they have already built up a large amount of capital and are living a pretty luxurious life. Angel investors aren’t people that are using their life savings to invest in a risky startup. 

Angel investors are people who have money to spend without batting too much of an eye. Because of this, angel investors get a ton of potential suitors who are all trying to convince them that their idea is the one that is going to make a difference.

How do you separate yourself from the pack and show an angel investor that you’re actually the special one, and not your competitors? Well, angel investors want to invest in businesses that are actually interesting to them. 

They want to invest in a business that they are proud to say they own. They aren’t looking for a few more numbers on their spreadsheets. These individuals already have massive investment portfolios. 

Angel investors do what they do to try to find the next big business that is going to shake up the marketplace. Show them why your business should appeal to them, and how it is creatively addressing a need that nobody is recognizing.

Angel investors don’t drop enormous amounts of capital

If you are expecting an angel investor to cover all of your business expenses with one single investment, then you are probably going to be disappointed. Angel investors aren’t looking to invest in large capital expenditure businesses. 

You’d be better off taking a business like that through more traditional forms of funding. Angel investors usually looking for businesses that cost between $100,000 and $2 million, tops, and you’ll usually be getting that capital from multiple investors.

Angel investors typically don’t get a return on investment

Like we said above, angel investors want to look for businesses that they are going to take pride in owning a share of. They want to look for businesses that are going to make a difference in the world, and are excited to see come to fruition. 

The reality, honestly, is that they are unlikely to ever make their money back by investing in a startup in this capital-range, but they know that! Because of this, you have to show more than profitability in your business model, when demonstrating and pitching to angel investors. 

You need to show them that you’ve thought through the possibilities about what your idea can be, thoroughly.

A word on angel groups

There are groups of angel investors that like to invest as a single entity These are called angel groups. These are usually a great way to get the entire investment that you need to get your idea going, if you can convince the person who manages the fund of the group that your idea is worth putting into. 

To do this, the angel group will create an LLC that exists to fund each investment by creating a special-purpose vehicle to invest through.