The basic principle behind angel investing is it is a form of equity investing. When you become an angel investor, you are committing some of your available cash wealth into a business that you feel has the opportunity to prosper.
An angel investor will often make their own investment decisions based on their knowledge of a particular market or business sector that they have experience of, and take shares in the business in return for their injection of equity finance.
It may also be that you unearth a certain business opportunity that you find attractive and despite not knowing much about the product or service being sold, you decide to commit some of your spare cash with a view to giving that company the capital they need and in the hope that the value of your shares will rise on the back of their success and give you a profit on your original investment.
Angel investing has gained TV exposure with shows like Dragon’s Den and Shark Tank, where budding entrepreneurs get the chance to get the investment they need in return for an equity stake in the business.
These shows highlight the basic principles behind angel investing and whilst the real world is not always the same as reality TV, you can access a number of different platforms where you can start investing and follow similar procedures to evaluate the risks and rewards of an opportunity to investing in a fledgling business.
Depending on where you are in the world, there may be different requirements that you need to meet in order to be accepted as an angel investor.
This is a high-risk investment strategy which can offer huge rewards or see you lose the entire value of your investment if the company you put your money in to fails. This is why there are sometimes safeguards and and entry requirements to meet.
In the U.S, angels generally need to meet the Securities Exchange Commission (SEC) definition of an accredited investor. This requires a net worth of $1 million and a household income that is upwards of $200,000 a year.
In the UK there are numerous platforms for investing and you can either look at the pitches put forward by companies looking for funding, or even advertise on these sites yourself as an angel investor and invite proposals for you to consider.
Angel investing is not an investment strategy for everyone, but if you have plenty of business experience, a reasonable to high net worth, or ideally both, you can find exciting opportunities where your money can make a real difference and earn you a stellar return when the value of your shares rise.
You must also be prepared to accept that this is an alternative investment where you can lose all of the money that you invest.
Not all businesses that are seeking investment are startups and you can also find established companies who are seeking an injection of capital to fund their next project or planned expansion.