If you are a business owner in search of a secure funding for your early-stage startup, an angel investor might be the answer. Angel investors specialise in providing financial backing for start-ups and small business owners usually in exchange for an equity interest. Because of the success of many companies such as Uber, WhatsApp and Facebook, angel investing in startups has escalated. The money that the investors bring to the table may hugely impact the future of your startup idea. And these days, startups have gained more chances of getting funded than ever before, but it is something that requires serious thought before moving ahead.

Before raising angel capital for your startup, have a look at the pros and cons of the angel investment bandwagon –

1. Substantial Investments

Angel investors can provide you substantial amount of money when you need it the most. And since they are usually very affluent, they can afford to put large sums of money into your business – between $25,000 and $1.5 million – enough money to lessen your burden of financial strain. You also have the flexibility to buy quality raw materials, best equipment and the best of talents to give your product a competitive edge in the market.

2. Mentorship

Because most angel investors were once successful entrepreneurs themselves, therefore they possess a wealth of knowledge, expertise and contacts that are usually required to succeed in the business field. You know that you are backed by the right persons in the field to help you grow your business.

An angel investor’s insight, business contacts, skills, resources and hands-on experiences are of tremendous value for your company’s success. Also, their name and expertise lend credibility to your enterprise, and your business will move in the right direction.

3. Open Minded in Decision Making

Because angel investors are investing their own money, they are more flexible in terms of investment and their deals are also negotiable. They also provide longer investment horizons, and they are willing to invest without expectations of quick profit. Also, they targeted rates of returns are lower compared to a venture capitalist.

4. No Extra Fees

Another benefit that angel investors provide is that there are no extra payment rates required. Unlike other institutions like bank and credit card companies, where they chomp off large amounts of budding entrepreneur’s profit that can even lead to debts, angel investor’s provide financial assistance that can take a business forward without worrying about the high monthly payments.

5. No Need for Collateral

Angel investors do not require any collateral, unlike other financial institutions that may request the use of your personal assets as collateral when you take some kind of funding assistance from them. Angel investors risk losing their invested capital if the business fails. Therefore they get closely involved in the business.

1. Giving Away Equity

In exchange for providing a fund for your new company, angel investors often require a certain percentage of stake in a company, and that could be anywhere between 10% to more than 50 %. This is something to ponder about since you put yourself in a miserable situation by owing up less than half of the company that you started.

2. Participation in Company Decisions

It is common for angel investors to participate in company decisions and to have a certain amount of control in running a company. You may have to make certain business decisions with them, and they can change and implement processes and policies whenever they find it suitable.

Another problem that may arise is the unsolicited advice they may give to you despite the lack of experience in your company’s niche. This limited knowledge can even lead to business failure.

3. No Follow-up Investments

Because of the risk involved, angel investors usually do not invest in the same firm even when it’s required. They prefer to expand their horizons. Moreover, they prefer to invest more funds only if the business is making a profit, not when it’s loosing.

4. “Bad” Angels

While most of the angel investors truly look beyond just monetary gain, but there are some who are greedy and are only motivated by money. These angle investors become very impatient on getting returns and will not be bothered to provide any guidance during a company’s early stage of development. They may also manipulate the terms and conditions of the partnership to get more out of the company than what they deserve.

It is advisable to do thorough research and obtain as much information as possible about the reputation of the potential investors before associating with them.

5. Lack of Solid Reputation

You will not find any well-documented directories or register for angel investors unlike other loan-issuing institutions have. This is why they don’t have wide-spread recognition. So it becomes difficult for entrepreneurs to locate them. They must go out and find them on their own.

Whether you are a start-up or an established business trying to market a new idea, angel investors are the right option for you as long as you are comfortable with compromising to a great extent. Do your research and study and compare all the financial assistance available to you before you settle on one.

Sahaj Kothari
Founder of BusinessBoost.xyz
Award winning author | Serial entrepreneur | Business coach