what is an angel investor 
an angel investor provides initial seed money for startup businesses usually in exchange for ownership equity in the company the angel investor may be involved in a series of projects on a purely professional basis or may be found among an entrepreneur s family and friends the investor s involvement may be a one time infusion of seed money or an ongoing injection of cash to get a product to market angel investors aren t usually in the loan business they re putting money into an idea they like with the expectation of a reward only if and when the business takes off laura porter investopediafeatures of angel investorsmost angel investors are relatively wealthy individuals who are looking for a higher rate of return than can be found in more traditional investment opportunities they search for startups with intriguing ideas and invest their own money to help develop them further the ventures are by nature extremely risky a survey by the angel capital association estimated that only 11 of such ventures end with a positive result their investments in each venture are relatively modest averaging about 42 000 1most angels keep their involvement in startups to no more than 10 of their portfolios 1an entrepreneur may seek an angel investor over more conventional financing the terms tend to be more favorable and in fact the angel investor doesn t expect to get the money back unless the idea succeeds they often seek an equity stake and a seat on the board angel investors focus on helping startups take their first steps rather than getting a favorable return on a loan angel investors have also been called informal investors angel funders private investors seed investors or business angels they seek prospects through online crowdfunding platforms or join networks that pool capital for greater impact origins of angel investorsthe term angel investor originated in the broadway theatrical world where plays were often financed by wealthy individuals rather than formal lenders and payments were due only when and if the production was a success the term angel investor was first used by the university of new hampshire s william wetzel founder of the center for venture research wetzel completed a study on how entrepreneurs gathered capital 2these days silicon valley is the center of the angel investor s world and the ideas being financed are related to the internet software or artificial intelligence who can be an angel investor angel investors have a genuine interest in innovation and a desire to be involved many have been entrepreneurs in the past anyone who has the money and the desire to provide funding for startups can be an angel investor they are welcomed by cash hungry entrepreneurs who can t get conventional bank loans or don t want the burden of big debt until their ideas take off angel investors have often obtained accredited investor status although this isn t a prerequisite accredited investor status is a formal designation regulated by the u s securities and exchange commission sec that gives individuals access to the private capital markets based on their assets and financial acumen the sec defines an accredited investor as an individual who has a net worth of 1 million or more in assets or has earned 200 000 in income for the previous two years or a couple with a combined income of 300 000 applicants must also demonstrate an understanding of sophisticated investment proposals 3sources of angel fundingangel investors usually are using their own money unlike venture capitalists who pool money from many investors though angel investors are usually individuals the entity that actually provides the funds may be a limited liability company llc a business a trust or an investment fund these are vehicles that the investor sets up for tax purposes or legal protection investment profileangel investors who seed startups that fail during their early stages lose their entire investments this is why professional angel investors look for opportunities that have a defined exit strategy an acquisition opportunity or participation in an initial public offering ipo the effective internal rate of return for a successful portfolio for angel investors is about 22 according to one study 4 this may look good to investors and too expensive to entrepreneurs but other sources of financing are not usually available for such business ventures this makes angel investments a good fit for an entrepreneur with a good idea and little or no cash to pursue it 