Angel investment harks back to Broadway where would-be theatrical producers would seek wealthy individuals to finance their plays and musicals.
In 1978, William Wetzel, then a professor at the University of New Hampshire and founder of its Center for Venture Research, completed a pioneering study on how entrepreneurs raised seed capital in the U.S, and he began using the term “angel” to describe the investors that supported them.
For the entrepreneur, the inherent benefits in finding an angel are obvious. Obtaining outside money for many businesses or startups often means the difference between a young business’s success and failure.
Conventionally, angel investors will invest in businesses at an earlier stage than other types of investors such as venture capitalists. Also, because angel investors are investing their own money, they can customarily make quicker decisions and may do so, in some instances, moreso on their “gut” instinct than after tons of presentations or extensive due diligence.
A round of investment from an angel can build the needed prototype to get the ball rolling or make relevant, required hires to begin scaling a company. But, of course, there are strings attached. Bringing in outside money invites scrutiny and possibly intensive involvement, depending upon the investor, which we’ll discuss later on.
For some recipients, particularly those who hadn’t started their own businesses before, an angel investor’s management experience, contacts or expertise, for example, may be welcome and provide a foundation otherwise missing.