What Is An Angel Investor?
An angel investor is an experienced professional as an entrepreneur, entrepreneur, executive or self-employed person, who is willing to dedicate part of their equity and time to the growth of innovative businesses.
Despite the name, the “angel” has no philanthropic or charitable motives. He bets on companies with high growth potential to recoup his investment in the form of profit .
The curious term that represents this type of investor comes from the translation of the English expressions that gave rise to this practice: Angel Investor or Business Angel.
They were initially used to refer to executives or entrepreneurs who sponsored Broadway shows in the early decades of the 20th century, as they shared the risks and profits with those responsible for the production of the shows.
Therefore, the term has evolved to designate successful and mature professionals, who have reached a stage where it is possible to invest at high risk in businesses that are in their early stages .
As Cassio Spina, founder of the NGO Anjos do Brasil and author of the book “Investidor Anjo – Practical Guide for Entrepreneurs and Investors” explains :
“Investidor Anjo receives, for its investment, a minority equity interest in the business, and does not assume an executive position in the company, but acts as a counselor guiding entrepreneurs and participating in the company’s strategic decisions, greatly increasing its chances of success, as well as accelerating its development.”
How Does The Angel Investor Work?
Typically, this professional employs between 5% and 10% of the equity he has to make his investments.
It is natural that this value is fragmented, divided among several businesses in which the “angel” believes, seeing scalability and expansion capacity in a few years.
Therefore, the time available to guide entrepreneurs is short, compensating for the quality of the advice, the network of contacts and the lessons experienced by the investor .
Another common fact is the entry of more than one such investment in the same company – in general, a startup .
This is because, to dilute the risks and the dedication time necessary for the company’s growth, several “angels” make a simultaneous contribution to the venture.
In this way, the manager or managers will have help from different sources , which increases the available repertoire to solve simple and complex problems on a daily basis.
To this end, a leader ( Lead Investor ) is chosen , who is responsible for a more active and analytical participation in the business, in order to guide the actions of other investors , called followers .
What Does An Angel Investor Do?
He may have a number of activities, including demands unrelated to his angel investor position.
There are, for example, those who are at the forefront or are part of the board and other management bodies in their own company.
Thus, one cannot expect a great involvement of this professional in the business in which he enters with a contribution, because that is not his objective.
In fact, the “angel” usually interferes in specific situations , directly linked to management and the market, in order to use their knowledge to show the entrepreneur a suitable path.
When he takes on the role of lead investor, leading groups of 2 to 5 people, his tasks include a preliminary assessment of the business and its possible future, and a pre-negotiation with the responsible entrepreneur.
These activities give agility to decision-making, since bringing together all investors can be complicated, as well as debates to analyze whether a particular company fits, or not, in the ideal conditions to receive a contribution.
Then, the leader puts forward the most relevant information and takes stock of the investment opportunity that will be presented to the followers, offering the necessary information to support their choice.
Who Can Be An Angel Investor?
In short, the person who accumulates enough income and market experience to help businesses that are at the beginning of their trajectory can be in this role.
Most angel investors are in a maturity phase, they have been through good and bad situations, they have made mistakes and successes with their own business or in executive positions.
Thanks to this experience, they are able to share the decisions that led to positive and negative results, through the so-called smart money .
This expression is used to mention the intellectual capital of the “angel”, its immaterial investment to boost startups and innovative companies.
Sometimes, this learning ends up being even more important than the money, as it avoids path failures already known by the investor and that can impact the enterprise.
It is a case of advice on the best time to increase the number of physical units of a company.
Knowing the market and the difficulties to grow , the “angel” can recommend that the entrepreneur wait a little longer before expanding, carry out tests and raise arguments that justify the new installations.
As for the minority interest in the company, the ideal is that the percentage that remains with the investor does not exceed 15%, so as not to compromise the entry of new contributions in more advanced stages of the business.
Contrary to popular belief, you don’t have to be rich to take on this role.
However, it is worth accumulating a reasonable equity, according to experts, and diversifying the investment portfolio to reduce the risk of considerable losses.
In the words of Fábio Póvoa, angel investor and director of Smart Money Ventures:
“For me, as a starting point, an angel should have about half a million dollars in their net worth. With that money, he would invest a percentage in various startups so that the risk ratio is lower and his investment portfolio more diversified.”
How Do Angel Investors Make Money?
As mentioned above, it is common for this professional to have other sources of income, outside of investments in innovative companies.
In any case, the angel investor works with medium and long-term returns , and it is rare for the business to start making a profit before a few years on the market.
So much so that the law that regulates this practice reserves the first two years for the founder to structure his venture, and only then can the “angel” withdraw the financial capital invested.
But the natural thing is that he maintains his contribution, or even increases it to guarantee the same percentage of profit sharing if the share capital is high.
What Kind Of Company Is An Angel Investor Looking For?
This professional seeks innovation-oriented businesses , being able to invest in any segment and type of company.
However, as it prioritizes profitability, scalability and creative companies, a large part of the investments is directed to startups, as we have already highlighted.
Another factor that weighs in the choice is the stage in which the company is , as the financial capital and smart money of the “angel” are destined for those who are starting in the market.
In general, the appropriate moment is when the company has already proven that its proposal and business model are viable, and is prospecting or closing the first sales.
After All, How To Get An Angel Investor?
If your company fits the requirements mentioned above, angel investment can be very useful for it to develop in a sustainable way and have continuity.
So you basically have two ways to get that support: via groups or by deciding on a specific professional .
Groups are usually more accessible and already bring together knowledge from different people, while direct access allows you to choose someone who has knowledge aligned with your business.
Whatever your choice, it is worth studying the group or investor before making contact, checking if they have the necessary experience to assess your market and type of business.
Then, seek an approximation through official websites, profiles on professional networks such as LinkedIn , groups on WhatsApp and Facebook, events or conversation circles in which they will be present.
Be well informed about the market, set up a small presentation (pitch) about your company and present yourself without fear of asking questions and adjusting your project.
