Angel investor

Before a startup is big enough to interest venture funds, it often needs an individual willing to back it with their own money and a hunch. That backer is an angel investor.

An angel investor is an individual who provides capital to early-stage startups, usually in exchange for an equity stake, typically investing their own money at the earliest and riskiest stage of a venture's life. Angels fill the gap between a founder's own resources and the larger sums that venture capital provides later, backing companies when they are little more than a team and an idea.

Backing the earliest stage

Angel investors typically come in at the very beginning, when a startup is too young, small, and unproven even for most venture capitalists, funding it from their own pockets when there is little but a founder, an idea, and early promise. This is the riskiest stage, where most ventures fail and there is least to judge them on, and angels accept that risk in return for a stake that could be worth a great deal if the rare venture succeeds. They bridge the early funding gap, providing the seed capital that lets a venture get far enough to attract larger, later investment.

Money and more

Like venture capitalists, angels often bring more than money. Many are successful entrepreneurs or experienced business people themselves, and they provide mentorship, advice, contacts, and credibility alongside their capital, helping inexperienced founders navigate the early perils of building a venture. This guidance can be as valuable as the money, especially for first-time founders, and a well-chosen angel can open doors, lend hard-won wisdom, and lend the venture standing it could not otherwise claim. The best angels are partners in the venture's early growth, not merely sources of cash.

How they differ from venture capital

Angels differ from venture capitalists in several ways. They invest their own money rather than funds raised from others, so they answer to no one and can back ventures on conviction, instinct, or personal interest. They invest earlier, smaller, and often more informally, and they tend to be more patient and personal than institutional investors. This makes angels well suited to the earliest stage, where the sums are small and the risk highest, and they form a crucial part of the funding ecosystem, the first outside money that lets a venture begin before the larger machinery of venture capital engages.

Angel investors are the individuals who back startups at their earliest and riskiest stage with their own money and often their own experience, bridging the gap between a founder's resources and the venture capital that may come later. Investing on conviction and bringing mentorship as well as capital, they are a vital first source of outside funding in the entrepreneurial ecosystem, the backers willing to bet on little more than a team and an idea, and so to give the earliest ventures the chance to begin.