You may be familiar with the term angel investors but may not be quite sure who they are or exactly how they work. Most often these angels are entrepreneurs; however, they may not be what you consider the “average” entrepreneurs. Meaning, they are quite often what is referred to as “cashed out” entrepreneurs, high net worth individuals that are sometimes interested in mentoring other entrepreneurs, and occasionally they become actively involved in the business they are backing.
At the risk of over-generalizing, there are some basic profiles of angel investors and their potential motives. For example, “cashed out” entrepreneurs are individuals that have started and sold their own company. They have proven that they know how to build and run a company, they may be seeking a new opportunity and quite possibly want to get involved with the board of directors or the managerial team. Or, perhaps they are professional service providers that may include consultants or attorneys that provide services to companies. Often times these angels will get involved with an early stage company in order to grow with them and provide increased services as the company grows and matures.
Other possible profiles may include business people that are interested in funding a company that is working towards a cause that they believe in such as environmental friendly sources for oil, energy, etc. Corporate executives may also look for young companies to back that are providing a new service or product that may very well help the corporation that they work for.
Ultimately, angel investors are investing because they want a class of investment that they can participate in that offers a chance of a high return (with the downside of high risk). Naturally, there are wide ranges of preference for what role angels want to see post-investment. Some may want to be passive and hands-off while others may want to be actively involved in helping the company grow.