Angel Investors

The third type of investors is referred to as angel investors, a term that originally came from

those individuals who invested in Broadway shows and films. Many angel investors are

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themselves successful entrepreneurs. As with venture capitalists, they are looking for returns

higher than they can normally find in the market; however, they often expect returns lower than

those anticipated by venture capitalist. They may be attracted to business plans because of an

innovative concept or the excitement of entering a new type of business. Being successful small

business owners, many angel investors will not only provide capital to fund the business but also

bring their own expertise and experience to help the business grow. It has been estimated that

these angel investors provide between three and ten times as much money as venture capitalists

for the development of small businesses. [11]

Angel investors will pay careful attention to all aspects of the proposed business plan. They

expect a comprehensive business plan—one that clearly specifies the future direction of the firm.

They also will look at the management team not only for its track record and experience but also

their (the angel investor’s) ability to work with this team. Angel investors may take a much more

active role in the management of the business, asking for positions on the board of directors,

taking an equity position in the firm, demanding quarterly reports, or demanding that the

business not take certain actions unless it has the approval of these angel investors. These

investors will take a much more hands-on approach to the operations of a firm.


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