An angel investor is a high-net-worth or affluent individual who provides capital to startup or early-stage businesses and business concepts.
Angel investors differ from venture capitalists because they invest their own money. Venture capitalists, on the other hand, decide where to invest the money pooled from several investors.
Sometimes angel investors can also be venture capitalists and vice versa, especially since “angel groups” or “angel networks” are becoming more popular.
Angel networks are groups formed by two or more angel investors with the purpose of pooling their resources in order to have more capital to fund startup companies. The fund of angel networks can be managed by one or more of the members of the group or they can hire an experienced venture capitalist to manage the funds for them.
Since angel investors fund start-up companies, the investments are considered high-risk. For this reason, angel investors usually choose start-up companies that show very high potential returns in the short term. In fact, angel investments usually show a potential ROI of 10 times within 5 years. One successful investment can offset losses incurred by several unsuccessful ones.
Notably, many angel investors have non-monetary motivations for investing. Angel investors are known for investing for purely philanthropic purposes, idealism, interest in helping the industry they belong thrive and make progress, and also to mentor the younger generations.