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The Pros and Cons of Angel Investors

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Angels have become an increasingly popular source of venture capital over the past decade. The term “angel” — when used to describe investing — usually refers to successful business individuals who are investing their own personal funds for a startup businesses. There are pros and cons to seeking Angel Investors and we’ll go over the top 5 in this article.

First, The Pros

#1) Good for Small to Medium Size Businesses

Most angel investments involve funding in the $25,000 to  $500,000 range making it a good fit for small to medium size businesses.

#2) Accepts High-Risk Ventures

Given the fact that over half of all new businesses fail within the first 5 years, it’s no wonder why so many financial institutions are hesitant to fund startups. But angels are often willing to invest in high-risk ventures that big banks won’t touch. Angels invest in the person rather than the business, keeping their eyes focused on the long-term goal. This is in stark contrast to traditional banks and lenders.

#3) Angles Offer Invaluable Knowledge

A third benefit of obtaining funding from angels is the invaluable knowledge and experience they bring to the table. Unlike big banks and other financial institutions, angles often work directly with the business to help it become a success. Angels may set up business owners with new clients, offer guidance and expertise, or simply provide their suggestions. Talk with your angel(s) beforehand to see how exactly they can help your business.

#4) Tax Relief

The U.S. federal government offers several tax reliefs for angel investors, one of which is the capital-gains rollover. This tax law allows angels to deter the capital gains on their investments by funneling the proceeds into a new small business. The capital-gains rollover law is designed to help angels retain their investments and limit their losses from failing ventures.

#5) Fast Funding

Angels can provide capital in a fraction of the time of time it would take a large bank or financial institution. Time is of the essence when launching a new business, and angels acknowledge the importance of obtaining capital fast. Some angels may require a short approval/waiting period, while others will provide funding immediately.

The Cons,

#1) Amount Available for Lending is Usually Less

Angel investors are normally individuals investing on their own and while they are willing to take a risk they typically keep their financial risk lower than that of company who provides funding. Their average investment is between 500k and 1M. If you’re seeking funding for high technology, energy, or other large scale projects Angel Investors may not have the funding you need.

#2) Return on Investment

Angel Investors on average expect around 25% in return which leaves your company to decide if you want to surrender that much of your company’s profits to an investor.

#3) Can be tough to work with sometimes

Angel investors are more connected with their investment projects and generally more interested which can be good but sometimes not so good. They may want to be more involved with the company than you want them to be. Some Angel investors may want to control some aspects of your business.

#4) Angel Investors are Busy

It can sometimes be tough to get their attention and keep it when trying to pitch your project to them. They normally have a lot of things going at once and you must have something really attractive or interesting to them to get their attention. It’s always important to have a solid pitch when you’re seeking investors.

#5)  Not interested in first time business owners

Startups with little or no experience may have a tougher time getting funding from Angel Investors as they tend to look for more experienced companies or projects who can show positive projections of the company’s success.

Brought to you by Intrepid Executive Group Blog –  A global financial services company.

Did we leave out any other pros or cons? Let us know in the comments section below!

 

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Intrepid Private Capital Group • October 13, 2014


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