subject: Pros and Cons of Angel Investors [print this page] Pros and Cons of Angel Investors Pros and Cons of Angel Investors
All of these are great but here's where the waters get murky. Now is the point when most people's dreams fade into the night sky like a shooting star. However, the next step isn't as hard as it seems, so long as you know what you're doing. With that said, angel investors are probably one of the most popular choices at this point in time for a new business. But are they really that much better than getting a loan? Let's find out!
What is an Angel Investor?
Angel Investors are defined as high net worth individuals who invest in start-up companies for the possibility of earning a return. These investors come in all forms, ranging from:
A Family Member
A Friend
Retired Businessman
Angle Investment Company
While the idea is the same, there are always con-artists out there. The best way to avoid them is to do your homework.
Benefits of Angel Investors
Here are a few of the benefits of choosing an angel investor over that of a debt loan.
Active Role
One of the biggest benefits of getting money from an angel investor is that they are likely to take an active role in the start-up of your new business. The challenge of this phase is one of the largest reason angel investors remain in the game. This means that you will benefit from their experience and connections.
Diverse Backgrounds
Angel Investors are often very keen in the field which they are investing their money. So they are likely to be able to give you key advise about any problems you may have. And they are very willing to help because their money is on the line. With that said, it's very important to research an angel investor before signing anything. One of the main reasons for this is to make sure their profile matches your company.
Disadvantages of Angel Investors
Although angel investors are a key target for new companies, they do have a few downfalls when compared to institutional investors or lenders. Here are the ones worth mentioning.
Higher Return Rate
Angel Investors are likely to want a higher return on their investment that conventional investors. However, since they play a more active role, this higher cost can be expected. Most times, the higher cost is worth the knowledge and experience they bring to the table.
More Control
Since angel investors play a more active role in your company, they will want more saying in how you run things. This can be a little frustrating for anyone new to owning their own business. To avoid this, make sure the contract you sign clearly spells out their limits. Also, keep in mind that angel investors are likely to know more about the market than you, so their input shouldn't be ignored.
