What is an Angel Investor

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An Angel investor is a person who is financially wealthy that provides capital to a startup. A person is considered to be an angel investor if they meet the guidelines of the Security Exchange Commission (SEC) definition of an accredited investor. The rules specified by the SEC is that a person must have one million dollars as their net worth. The person must also make a minimum of two hundred thousand dollars per year to be a qualified as an accredited investor.

Angel Investor

Where in the world did the term Angel Investor originate

In the world of Broadway theater, producing a play does not come cheap. There are a lot of components that need to be put together to have a successful production. You need to have a fantastic script, actors, director, venue, costumes, and most important is money. You need to have money to get everything started. The term angel investor originated from Broadway. These are wealthy people who provided funding to get the theater production off the ground and going.

What role does an angel investor play in a startup

The purpose of an angel investor is to provide initial funding for a business. The angel investor is looking for opportunities to invest in a young company that can deliver adequate returns to the future. The angel investor helps infuse capital into the company to provide growth. The angel investor offers better terms than getting a small business loan. The angel investor will take a percentage of your company based on the investment amount and valuation of the company. The angel investor has strict requirements that a startup must meet for them to invest. The angel investor is using their own money to buy a stake in a startup.

The angel investor plays an integral part in the ecosystem of funding for a startup. These are the first people that startups seek to help them fund their salaries, development, marketing, and business goals. The angel investor can be very hands-on in how their money is being spent, or they can be very silent. The relationship between an angel investor and the founding team of a startup must align adequately to make sure that business goals can be obtained with little distraction.

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Written by Ricky Singh, MBA

Founder & Editor of The Startup Growth


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