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Angel Funding: Why Angel Investors Invest
There are four primary reasons why angel investors typically invest in privately-held companies.
The first key reason why angels often invest is that they believe they can get a solid return on their investment (ROI). Investing at the earliest stages for a company that eventually goes big can earn the investor 100X their money back or more.
According to the Center for Venture Research, angel investors expect an average 26% annual return at the time they invest, and they believe that about one-third of their investments are likely to result in a substantial capital loss.
A second key consideration for angel funding is that the angel knows, likes and trusts the entrepreneur. Like with friends and family investments, sometimes angels know and trust the entrepreneurs and want to help them succeed.
A third reason why angels invest is that they feel they can add real value. This is because many angels have lots of relevant experience that can help the companies they fund, from experience hiring staff to connections with key potential customers or suppliers. According to “Growthink’s Step-by-Step Guide To Raising Capital from Angel Investors,” if angels can see their involvement adding a lot of value to the company, they might be very interested in investing. This is particularly the case when the angel investor has run a company similar to the one they are considering investing in, or if the angel knows key people in the company’s industry which could be advantageous to the company’s success.
Finally, sometimes angels invest just because they want or like the “action.” Simply put, angel investing is exciting. It is generally a higher risk/higher reward version of the public stock markets requiring a more entrepreneurial analysis which is highly intriguing.
Keeping these motivations in mind can help you secure angel investments for your business.
We recently released a report - the Step-by-Step Guide to Raising Capital from Angel Investors, which explains exactly how to find angel investors and successfully raise angel funding.
Click here to learn more about this special report.