July 2, 2022

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What is Angel Investing and How does it Work?

3 min read
Angel investors
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Angel investors provide capital to businesses in return for equity in the company, which usually happens during the startup phase. Startups don’t need to pay any money back if they fail because it’s not a loan.

Investors will receive a portion of the profits once a business is sold. If the company goes public, the value of its shares will skyrocket, and they’ll be able to sell them for a lot more than their initial investment.

The best angel investors in the world know they’ll find a few unicorns, which is where they’ll make most of their money. It’s why they invest in so many companies and reject most founders who walk through their doors.

One of the reasons why startup founders love angel investors is because they invest their own money, whereas venture capitalists work for others. If someone is personally invested in a business, they’ll offer more of their time to help out.

How does Angel Investing Work?

  • Finding Angel Investors
  • Carrying Out Research
  • Pitching Your Business
  • Starting To Negotiate

Finding Angel Investors

You’ll need to find angel investors before doing anything else. Simon Kronenfeld recommends networking with people in the industry as soon as possible, so you’ll be able to reach out to contacts when you’re ready to raise capital.

Spend time talking to other entrepreneurs on popular online platforms, attend startup events around the country, and reach out to recently funded companies. If you get creative, it’s possible to connect with many investors.

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Carrying Out Research

Even though some investors will give you advice, others will take a hands-off approach. You won’t be able to tempt certain people into investing in industries they don’t care about, whereas others will invest in any industry.

It’s vital to carry out research on angel investors before pitching them. Hopefully, it will give you enough knowledge to impress them during your meeting. You’ll also be able to strike a few names off the list you compile.

Pitching Your Business

You’ll need to give the performance of your life during the pitch, which is the most important part of the process. Keep in mind that investors will also be investing in you and your co-founders, so you must impress them with your skills.

Simon Kronenfeld says you’ve also got to spend time sharing the major selling points of your company once you’ve given them a brief overview. It’s best to pitch potential investors in person, but you can also send a detailed email.

Starting To Negotiate

If you watch Shark Tank or Dragons’ Den, you’ll know what comes next. Once an angel investor decides to invest in your company, you’ll go into the negotiation phase, where both parties will try to strike a deal.

Maybe investors will only give you money if they receive a larger share of the company. You could be questioned about the exit strategy, so they’ll know when to expect a payout. It’s possible investors will want seats on your board too.

You’ll receive money once an agreement is reached, which will allow you to head back to your office to build the company into a financial success.

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