An angel investor puts personal money into an early-stage startup, usually before venture capital arrives. Angels may invest alone, through a loose group, or through a group fund. They can be current or former entrepreneurs, and their faster, less formal decisions can make them useful when a young company needs its first outside capital or a bridge to a later round. section 5.2 section 6.1
Angel money commonly fits the gap between an unproven startup and a larger VC round. A round may be priced equity, though that is less common, or debt through convertible notes. Because angels invest early and take substantial risk, a bridge can offer a discount on the price paid in the next VC financing. section 6.1 section 5.2
When approaching angels, make the pitch short and make these points easy to trust:
- Lead with genuine passion, drive, and the personal reason for building the company; angels are investing their own money and must want to back the founder. section 6.5
- State the business purpose plainly: the customer, the important problem, and why the team is qualified to solve it. section 6.5
- Describe the commercial opportunity, serviceable addressable market, market trends, and competition; never claim there is no competition. section 6.5
- Show traction where possible, while recognizing that angels expect major uncertainties such as product-market fit or the final business model to remain unresolved. section 6.4 section 6.5
Building a meaningful angel round
A single large angel group might yield 15 investors at $25,000 each, or $375,000. Repeating that result with three groups can exceed $1 million—enough, in the stated example, to support a five-person company with a $75,000 monthly burn rate for about 15 months. This illustrates why many small individual checks can add up to real runway. section 6.1
Table 5.1 The who, what, and when of the various stages of venture capital financing rounds
|
Round
|
Pre-seed
|
Seed
|
Series A
|
Series B
|
Series C
|
|---|---|---|---|---|---|
|
Form
|
Cash or debt
|
Equity
|
Preferred “A” equity
|
Preferred “B” equity
|
Preferred “C” equity
|
|
Who
|
Founders Friends and family
|
Venture capitalists Angels
|
Venture capitalists Corporate
|
Venture capitalists Private equity Corporate
|
Private equity Corporate
|
|
What
|
Early working capital to get to first financing
|
First formal financing round after formation from investors focused on early-stage investing
|
First significant financing round in which one or more VCs become involved in a company previously financed by founders, seed VCs, and/or angels
|
Scaling round when the company has proven it is able to grow fast
|
Management and investors are contemplating an exit and need to prepare and raise the value of the company in preparation.
|
|
When
|
Immediately upon formation
|
When they agree with and buy into your “story” of opportunity
|
Once proof of product-market fit is shown (typically three paying customers)
|
When sales and marketing are what is needed to grow
|
When the company is contemplating an exit
|
|
Size
|
$100,000 to $750,000
|
$1 million to $2 million
|
$2 million to $10 million
|
$10 million to $25 million
|
$25 million and up
|
Compare angels with founders, friends and family, venture capitalists, corporate investors, and private equity across pre-seed through Series C financing. section 5.2
The practical takeaway: treat angels as a serious financing option, not a consolation prize. They can be the first organized investors in a startup and can provide a bridge when cash is running low but progress is not yet strong enough for the next major round. section 6.6
