Angel Investor Meaning
Parents, when their children are in trouble or looking for some motivation, tells stories where angel do miracles, parents tell these stories as it gives them hope and happiness. In finance angle investors refer to those investors who invest capital into small start-ups or business, in simple words in finance angel investors are a ray of hope to those owners who are in need of capital but are unable to raise capital from the markets. In order to understand this term better let’s look at advantages and disadvantages of angel investor –
Advantages of Angel Investor
Providing Funds to Talented Owners
The first and foremost advantage of an angel investor is that they are of great help to those owners or entrepreneurs who are talented but are unable to start a business due to lack of funds. Hence angel investors by giving funds at the initial stage give the talented owners a Launchpad from where they can fulfill their dream and benefit themselves as well as angel investors.
No Collateral or Guarantee
Another advantage is that angel investor does not require any collateral or guarantee from the owners of the company which is the case when funds are raised through banks or financial institutions and hence for owners who have not solid financial background to provide collateral to banks and financial institutions investment by angel investors is good way of obtaining initial capital for their startup.
Angle investors not only give capital but also have a vast knowledge of business which can be of great help to new entrepreneurs who are doing business for the first time. Hence owners can make use of their knowledge to avoid mistakes which they committed which ultimately benefits their business as lesser the mistakes higher the chances of making profits by the company.
Disadvantages of Angel Investor
Sharing of Profits and Stake
The biggest disadvantage of an angel investor is that they demand the share in both profits as well as stake which initially does not create a burden for the owner but as the company grows and profits rise this sharing of profits and stake can be burdensome for the business as well as the owner of the business.
Constant Intervention by Angel Investors
Knowledge sharing is one thing but constantly intervening in important matters of the company is another thing and that is the reason why sometimes owners feel frustrated as they find it suffocating as they are not able to take the decision themselves independently due to constant pressure from angle investors regarding important decisions of the company.
Another disadvantage of angel investors that only some of the angel investors come into the company for taking the company forward and think about its long term growth whereas the majority of angel investors put money into the company for generating quick gains and leave the company. Hence not all angel investors can be relied upon as far as the owner of the company is concerned.
Conclusion about Angel Investor
As one can see from the above that getting angel investors on board has advantages as well as disadvantages and any owner thinking of taking funds from these investors should carefully analyze above points and then take the decision whether to go for angel investor funding or not.