Originally coined on Broadway as a term for wealthy individuals who provided cash to support theatre productions, the term “angel” transcended into the field of business in the 1970s.
A business angel (also known as an informal or angel investor) is typically an affluent individual who provides capital for a business start-up, usually in exchange for ownership equity or convertible debt (i.e. which the holder can convert into shares in the issuing company or cash of equal value at an agreed price).
Angel capital fills the gap in start-up financing between friends and family (who often provide low levels of funds to assist a new business get off the ground) and formal venture capital (a venture capitalist manages the pooled money of others in a professionally run fund, as opposed to a business angel who invests his own money).
There is no set amount for professional angel investors, and the risks are typically very high – hence why they usually only seek opportunities which have the potential to return at least 10 times the original investment (now you know why it’s so tough in the Dragon’s Den!).
Many angel investors organise themselves into groups or networks to pool their investment capital, share research and to provide advice to their portfolio companies – if you want to find out more, take a look at the UK Business Angels Association at www.ukbusinessangelsassociation.org.uk.
Did you know? Each year private investors account for between £800 million and £1 billion of early stage investment in the UK – the single largest source of early stage capital in the country.