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Angel Investors — Who Are They?

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Angel investors

Angel investors are individuals who invest their capital in growing a business, while venture capitalists use money from their company or other investors to do so. Otherwise, the functions of both types of investors are the same, as is the same goal of allowing the business to grow as efficiently as possible to generate a steady stream of cash flow.

Various Types of Angel Investors

Depending on the purposes and tasks of investing and the ways and methods of placement, angel investors in Texas can be of the following types.

Micro-Investors

These angel investors own tiny amounts (within 10 thousand dollars) and usually invest in various projects, often crowding in. Often, they do not even get real leverage over the company, acting more like co-investors than partners.

Micro-Managers

They typically fund a small business of the traditional or, conversely, innovative type, such as developing a new mobile app. Then, micro-managers organize the company, do the accounting and paperwork, find contractors, etc., allowing the creators to focus entirely on implementing the project.

Entrepreneurs

These sorts of angel investors fund their projects, often in multiples. They invest quite large sums, from $100,000 to $500,000. As a rule, these are established entrepreneurs who understand how a particular business works. The purpose of their investment is to expand or automate their own business. Usually, their projects are somehow related to the core business.

Amateur Enthusiasts

They invest in “trendy” fields but don’t know the industry deeply, crowding in and interfering in business processes. They have all sorts of funds on hand. They may be people who received an inheritance or a large bonus for their work or professional investors who decided to diversify their portfolios. For them, it’s not the process of achieving the goal that matters but the result.

Corporate Figures

Typically, they are top executives from various reputable firms, business people selling businesses, or media personalities who received a large sum of money (for example, $1 million) and wanted to invest wisely. They support all of the money in 1–2 projects and seek maximum company control by participating in all business processes.

Professionals

It is the rarest type of angel investor but the most sought-after on the market. It is because they specifically look for the most promising startups. They operate with large sums of money but rarely invest more than $250,000 in a single startup. Instead, they usually lead to a dozen projects. Sometimes they unite into associations, leagues, or groups and make collective investments.

Startups usually look for professional angel investors to help them take their business to the next stage. But many people are happy with amateur enthusiasts and even micro-investors; this way, entrepreneurs get money and keep complete control of the company.

What are the Differences from a Venture Capital Fund?

Get to know several fundamental differences before you apply to them:

  1. Invest money, whereas venture capitalists invest in businesses or third-party capital. At the same time, venture capitalists may even insure their risks with an insurance company. Therefore, angel investors have a personal interest in the venture’s success, while venture funds can, roughly speaking, give money and hope for the growth of the startup.
  2. Venture investments usually take place in several rounds. After the investors successfully “absorb” the amount and receive a report, they allocate the next tranche. Angel investments most often mean a single investment, although the angel investor himself may finance the startup in tranches.
  3. Angel investors have a more significant influence over startups. Venture capitalists usually limit themselves to a small share of participation, acting more often as passive observers.
  4. Angel investors can invest without expecting to get a monetary return. For example, they invest in a cultural project, hoping to raise their prestige in return. Or maybe they have plans to integrate the startup into their company when it grows. Venture capitalists always have their financial interests at heart.
  5. Investors may invest in unconventional projects with unconventional ideas, while venture capitalists prefer more conventional business forms.
  6. Invest in projects in the early stages when there are high risks that the startup will not “take off.” Venture investors prefer to invest in the late stages when there is already a product and the first sales, and the project needs active expansion.

The Top angel investors in Texas are:

  • Cowtown Angels;
  • Foodshed Investors;
  • The Lone Star Angels;
  • Capital Factory;
  • Techstars;
  • RevTech Ventures;
  • SKU.

Angel Investors — Who Are They?

The Benefits and Drawbacks of Working with Angel Investors

Engaging angel investors is beneficial in several ways:

  1. Getting capital in the early stages of a project.
  2. They are not usually part of the capital, which gives the project’s authors more power.
  3. Help not only with money but also with connections, advice, supplies, etc.
  4. The authority enables the project to proceed.
  5. Angels are involved in non-standard projects.

But there are also disadvantages:

  1. Funding will be a factor of ten less than that of a venture capital fund (the average check will range from $50,000 to $100,000, whereas a venture capital fund will range from $250,000);
  2. Many angel investors actively interfere in the process, and you have to learn to get along with them.
  3. Finding an angel investor is more complex than finding a venture capital investor.
  4. But the disadvantages, in general, are due to the specifics of the phenomenon itself, so you have to put up with them.

How Do You Find the Right Angel Investor?

Attracting an angel investor to a project is not an easy task. But if you follow the steps of a bit of instruction, you’ll have an order of magnitude better chance. How to find:

  1. Have a good thought. It can be something unusual and revolutionary and a pretty traditional business. The main thing is that the startup itself should be interested in doing the business.
  2. Develop a clear business plan. You must show the potential investor the profitability of the enterprise.
  3. Identify your target audience. It is how you show the angel investor that you have researched the issue and are ready to sell. In addition, it is desirable that the potential investor also belongs to the target audience because it will be easier for him to understand the profitability of your proposal.
  4. Outline the range of potential investors. First, you must understand what type you are interested in, how much capital it should have, how much it should be involved in the management of the business, etc.
  5. Create a proposal, a so-called white paper, a road map, a presentation (which can be in video format), and a business plan. The investor will immediately get the complete picture of your business by looking at these documents.

Investors become successful and experienced businessmen, top managers of various companies, professional investors, media people (actors, athletes, former politicians), etc., people with quite a lot of personal capital. They understand that funds can be invested long-term without any guarantees because not every startup is successful. Nevertheless, this is your chance to implement ideas and give life to a successful new project.

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