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Principal cons of angel financing

by on
in Business Management

Finding the right angel can be laborious and time-consuming.  The diversity of angels, with varying degrees of expertise and business strategies, can sometimes complicate the identification and selection process. 

While many angels are extremely sophisticated, others may lack the knowledge and proficiency in investing that an entrepreneur is seeking.  The entrepreneur should always research the background of any potential angel investor.  The offer of capital alone should not be sufficient.

The most significant con to angel financing is that the entrepreneur will be required to relinquish some ownership of the business.  Angels typically look to share in the upside potential of the businesses in which they invest.  The angel may ask for equity shares giving them preferential rights over common stock holders or other securities that give them a degree of preferential leverage. 

An entrepreneur needs to fully consider the implications of the equity structure that is agreed upon and should be confident that the business can meet the payment obligations, transaction costs, and other definitive benchmarks.

Finally, the entrepreneur may need to accept a loss of a certain degree of control over the business.  This may be difficult for entrepreneurs, particularly if there is a personal history of exclusive management and control.  An entrepreneur may want to find other means of financing outside of an angel relationship if absolute control over the business entity is the only option.

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