Angel Investing 101: What is angel investing?

There is a wide range of assets you could invest in today, a few include:

• Cryptocurrencies like Bitcoin
• Stocks and shares in publicly listed companies like Apple
• Real estate like a house you purchase to rent on Airbnb
• Classic cars like a vintage Aston Martin
• Prestige watches that hold their value such as a Rolex
• Art masterpieces such as a Bansky painting
• and the list goes on…….

With any investment you make, there is a risk you could lose your money or potentially you could make a return on the money you have invested.

Let’s walk through a simple example:

If you invest £1,000 and after a period of time you receive a 2x return, that means you would receive £2,000 as a return i.e. you have doubled your investment. In this scenario, you made back your initial investment of £1,000 with a profit of £1,000 on top. Not bad! This is of course a simplified example not including things such as transaction fees but this is the basics of what it means to make a return on your investment.

An angel investor sometimes referred to as a business angel is an individual who invests in privately owned small businesses (startups). The investors can choose to leverage their experience, expertise and network to add value and support the company through growth. They receive equity in exchange for this investment with the hope to share in the returns if the company experiences a liquidation event such as an IPO (initial public offering on the stock exchange) or acquisition from another company (trade sale).

Many initially disqualify themselves from investing in startups because they believe they can’t afford to. With the advancements of modern technology, you could invest a few hundred pounds in startups on Equity Crowdfunding platforms such as Seedrs, Republic and Crowdcube. Check out how VC investor, Henrik from Playfair Capital got started initially through investing on Equity Crowdfunding platforms. Contrary to popular belief angel investors can invest as little as a few hundred pounds in startups to be considered an angel investor. Another key characteristic is that angel investors invest their own money compared to for example Venture Capitalists and Private Equity houses who manage and invest money they raised from their Limited Partners. 

Angel investors usually invest their own money into a start-up in exchange for an ownership stake in the company, also called equity. Equity is defined in simple terms is defined as ownership of a company. If you get 20% of equity that means you own 20% of a company. This is the most common type of monetary exchange between founders and angel investors. There are different types of funding structures that investors can offer to founders, however, such as convertible notes (promise for future equity at the next priced funding round).

In addition to providing a new business with capital, angel investors also support founders with other resources such as access to important contacts, mentoring and advice which can be valuable resources for startups. When first-time founders set off on their start-up journey, they often need support with critical business decisions. This is where angel investors can provide significant strategic value. For example, a founder is looking to hire a software engineer and as an angel investor, you can support your founder in this process by helping them during the recruitment process or referring a great engineer from your network. As mentioned, there are many different types of support angel investors can provide. This is also called the added value of an angel investor.