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I'll paste here an article from my website that best answers this for you and will give you some additional understanding about them:
1. What do they invest in?
2. How does the investing work?
3. Where can you find them?
Here's the answers:
1) Simply put, angel investors invest in the types of businesses that interest them. That can cover a wide range of business types and industries.
Typically though, "serial angels" (those sophisticated investors who routinely put capital into many businesses) tend to prefer those they have experience in. They usually are looking for high growth businesses. "One shot" or main street type angels that limit their activities are often local business people or professionals that have some extra capital to put to work as investments in businesses in their area and may not do things on the scale of a serial or professional angel investor. They may consider smaller opportunities or lower growth type businesses that are local to them, where the entrepreneur or business owner shows them their business is viable and has opportunities, and they have access and can observe how the business develops.
2) Usually an angel investor is a straight equity investor (or places the funds with you as convertible debt).
That means they buy part of your company (the stock) for part of the ownership. Depending on their own requirements that may be a minority position (less than 50%) or majority position (51% or more). Rarely would you see a 50/50 split and frankly that is not a good position to be in since no one has clear control of the business direction if it came down to a ‘vote'. As a business owner unless you have some real compelling reason to do it ... never give up more than 49% of your business to investors. My opinion of course.
With more sophisticated angels, you sometimes will see them (and VC's) use a convertible note (sometimes called a debenture) to secure the capital they put into a company. That means they put the money in as debt (loan the money to the company) and in return get paid back with interest ... since their money is at significant risk (especially if you are new company or start-up) they want it structured as debt so they can recoup some of the money if the business fails. When a business fails creditors sometimes have a shot at getting some money back by seizing assets and selling them to re-pay the debt or going after any personal (non-business) collateral if tied to the debt. Equity investors do not have any recourse if the business fails. But if the business has real growth prospects, the note will probably have conversion rights so that if the business succeeds they can change their debt to equity (stock) in the company. That is the "sweetener" in the deal for the angel investor and often is referred to as an "equity kicker".
3) You can find them by searching online for "angel investors".
You will find a lot of web sites but will need to sift through them all to find the ones that are direct contacts (not intermediary or venue sites that sell you access to the investors) and to find the ones that are going to be interested in your type of business. You can find them on your own but it does take work on our part.
You can also search this site and find other info on angel investors that might be of interest or informative.
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