Angel investors are people who are willing to invest in a business to help entrepreneurs succeed. These people come from all walks of life and may be doctors, lawyers, businesspersons, and those that have simply inherited large trust funds.

Angel investors usually invest in businesses in exchange for a share of that business. This can be a good thing because the risk of losses is usually spread out between the entrepreneur and the investor.

If you're running your own startup or have plans of putting up your own business, it's useful know what angel investors can do for you. Here are the basics.

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What amounts are invested?

The amount of money that an angel investor can give to a business will depend on the existing needs. It may be as low as $25,000 or as high as $500,000 or even more.

What kind of net worth should angel investors have?

According to the Securities Exchange Commission (SEC), an accredited angel investor in the US needs to have a net worth of at least $1 million. In addition, the investors need to have a yearly income of at least $200,000 if single, or $300,000 if they have spouses.

The relatively high net worth required of angel investors is because many startups tend to fold in their first five years. The investors are therefore likely to lose all their investments before realizing any profits. They need a financial cushion to absorb possible losses.

What are the characteristics of angel investors?

Angel investing is not for everyone. There are certain people who are better positioned to buy into business startups than others are.

Angel investors should:

·         Be people who are willing to help others out.

·         Be people with a high risk tolerance. Should the startups they invest in fold, they stand to lose not just their initial investment, but also the equity that they own.

·         Be a visionary. Startups will undergo a lot of teething problems in the beginning. Angel investors need to be able see beyond those problems and focus on the possible positive future.

What are angel investors on the lookout for?

There is no guarantee that an entrepreneur will be able to get an angel investor to buy into his business idea. These investors have a particular set of criteria that they look for when determining which businesses they should invest in.

Some of the things that angel investors are always on the lookout for include:

·         The integrity of the startup founders - If one does not possess honesty and is not trustworthy, the business is likely to fail, and investors will lose their money.

·         The niche market that one’s business addresses and the potential for growth in that area - If entrepreneurs do not have anything great to offer, their business will be pushed out of the market in no time at all.

·         A superb business plan - If one does not have a plan, or doesn't show signs of following that plan, the startup is bound to flounder and die. Entrepreneurs need to know where they are headed to if they are to get people to trust them with their money.

·         A relatively accurate and attractive valuation of one’s business - One needs to be able to justify the amount of money that he is looking for.

 

While angel investing is not for everyone, it may just be the perfect financing option for an entrepreneur so long as he does not mind ceding some shares of the business. This financing option is a great way to spread the risk while getting seed money to grow one’s business. One should take time to find an accredited angel investor that can provide security with less pressure.

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