Angel investors come in all forms but are usually independently wealthy individuals who make private investments in early-stage ventures. Many are successful entrepreneurs or former executives who want to help other entrepreneurs get their businesses off the ground. Angels generally provide the first round of financing for start-up companies before the business is established enough to attract venture capital funding.
Angels are looking for a higher return than they would normally receive from more traditional investments. Although data suggests that there are wide ranges of initial investment amounts, most angels keep their investments under $100,000 in order to spread their risk across several companies.
Angel investors often act in formal groups to complete larger deals. Estimates regarding the number of active angel investor groups in the Unites States tend to be quite anecdotal and often vary tremendously based on the lack of SEC registration requirements. Data suggest that there are close to 200 active angel groups and well over 250,000 individual angel investors.
Angels fill the gap between financing from friends and family and venture capitalists who generally invest in much larger businesses. Consequently, they remain a viable and necessary source of capital for many start-up companies. As well as providing the needed initial financing, angel investors can also operate as mentors, supply business expertise, and serve as a conduit for additional business contacts, all of which are beneficial to a new venture.