An angel investor is someone who invests their own money into a business. Unlike venture capital firms which represent investors, angel investors operate independently. Typically they will have a high net worth and an interest in helping businesses grow. Many are themselves serial entrepreneurs.
Angel investors will invest in companies with high growth potentially, often at the startup stage, to take advantage of exponential returns.
When should you seek angel investment?
Typically the best times to seek angel investment are in the early stages of your business when there is a greater opportunity for the investor to get in on the ground floor. Ultimately what they care about most is making a high return on their investment. For your business, this may translate into seed funding or Series A funding.
Types of angel investment
When seeking money from an angel investor, there will typically be a formal structure in place around how the investment will be repaid.
There are two types of angel investment which determine this – convertible debt financing and convertible equity financing. While both will convert the debt to equity at a later time, the process in how this is achieved varies. To find out more about this process check out our article on seed funding.
How much will angel investors invest?
Typically angel investors will invest smaller amounts than venture capital firms, usually around $25,000 to $100,000. In return they may seek between 20-40% equity in your business. It’s common to seek investment from multiple angel investors if needed.
The more funding you’re given, the more equity you’ll need to give away so it’s important to be strategic about how much funding you actually need versus taking on as much as you can.
What are the benefits of angel investment?
There are several key benefits when seeking funding through an angel investor versus through a venture capital firm or other avenue. The process has less red tape and can be completed more easily and quickly. Venture capital firms, unlike angel investors, need to jump through more hoops when it comes to due diligence which can slow down the process.
Having an experienced investor working directly with you is powerful. They will be motivated to see you succeed and can share advice and knowledge to help you achieve your goals.
Angel investment may be provided in one lump sum rather than stages which can be beneficial for cash flow.
Often angel investors are happy to partner at arms length. They aren’t necessarily looking for a board seat or greater control over the company, they just want to see their investment pay off.
What are the pitfalls of angel investment?
There are also disadvantages associated with angel investment. You will need to give up some equity, which for some entrepreneurs will be undesirable. If you’re considering going down this track, get advice on what a reasonable offer may be, especially in regard to how much equity you give up.
Another pitfall is that while having a direct relationship with the investor has a number of benefits, it can also increase the amount of pressure on you to perform. You’re highly visible to the investor which makes you more accountable day-to-day.
How to find angel investors in Australia
There are several ways to locate angel investors in Australia who may be interested in investing in your business. This includes groups dedicated to connecting angel investors with early stage companies. This includes Sydney Angels, Brisbane Angels, Melbourne Angels or Perth Angels.
Networking with other early stage businesses, entrepreneur networks or investment networks will also help you get in front of angel investors or be referred to the right people.
If you’re looking to source capital through angel investors in Australia or internationally, Keeping Company can help. Not only can we link you to the right people to source angel investment, we can also help you prepare for and guide you through the capital raise process. Contact us today to find out how we can help you with your seed capital raise.
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For all media enquires please contact Tracy Miller, CMO, Keeping Company 0414 898 452.
The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.