Who are angel investors?
Takeaway: Angel investors are high-net-worth individuals who provide critical, early-stage capital and mentorship to startups, but founders must conduct their own diligence to ensure their angels are sophisticated and can add real value beyond their check.
After you have exhausted your own resources and any initial capital from friends and family, the next crucial step on the fundraising ladder is often the angel investor. Angel investors are the first "professional" capital your startup will likely take in. They are a critical part of the early-stage ecosystem, providing the seed funding that allows a promising idea to become a real company.
Understanding who angel investors are, what motivates them, and how to find them is an essential skill for any founder.
What is an Angel Investor?
An angel investor is a high-net-worth individual who invests their own personal capital in early-stage, private companies. To participate in a startup's private placement, they must meet the SEC's definition of an accredited investor (typically, having a net worth of over $1 million, excluding their primary residence, or an annual income over $200,000).
Unlike venture capitalists who invest other people's money, angels are investing their own. This often makes their investment decisions more personal and their timelines more flexible.
What Do Angels Provide?
While the capital is critical, the best angel investors provide far more than just a check.
Expertise and Mentorship: Many angels are successful former founders or executives themselves. They have "been there, done that" and can provide invaluable, hands-on advice on everything from product development and hiring to go-to-market strategy.
Network Access: A well-connected angel can open up their professional network, providing critical introductions to potential customers, partners, and, most importantly, to the venture capital firms that will fund your next round. A "warm intro" to a VC from a respected angel is the single best way to get your pitch deck read.
Credibility and Validation: Having a group of well-known and respected angel investors on your cap table is a powerful signal to the market. It provides social proof that smart, experienced people believe in your team and your vision.
How to Find and Vet Angel Investors
Angel Groups: Many cities have formal angel groups (like the "Band of Angels" in Silicon Valley) where investors pool their resources and diligence efforts to invest in local startups.
Your Professional Network: The best way to find angels is through warm introductions from your lawyers, accountants, and other founders.
Due Diligence is a Two-Way Street: You are not just taking money; you are bringing on a long-term partner. You must conduct your own diligence on a potential angel.
Are they sophisticated? Have they invested in startups before? Do they understand the risks and the norms of the industry (e.g., using a standard SAFE)? An inexperienced angel can be more trouble than they are worth.
What is their reputation? Talk to other founders who have taken money from them. Are they helpful and supportive, or are they a distraction?
Can they add value beyond their check? Do they have relevant industry expertise or a network that can help your specific business?
A great syndicate of angel investors can be the catalyst that propels your startup from an idea to a fundable, high-growth company.
Disclaimer: This post is for general informational purposes only and does not constitute legal, tax, or financial advice. Reading or relying on this content does not create an attorney–client relationship. Every startup’s situation is unique, and you should consult qualified legal or tax professionals before making decisions that may affect your business.