Definition
An angel investor is an early-stage investor who funnels capital into start-ups and small businesses with the expectation of high return potential, usually in exchange for equity, royalties, or crypto tokens through initial coin offerings (ICOs).
Understanding the term
An angel investor is a solo investor, as opposed to a venture capitalist who invests in a group and is a part of a venture capital firm.
Typically, angel investors provide seed funding to start-ups. The interaction is often mutually beneficial for both the start-up and the angel; the start-up receives financial backing in its early stage, whereas the angel gains partial ownership of the company and can reap good financial returns if the venture becomes successful in the future. As opposed to the traditional financial market, where business owners may have difficulty accessing loans, angel investing does not have a cap on the funding requirements.
A number of blockchain start-ups are financed by angel investors, often discovered through investment and entrepreneurship networks. Angel investors also get to participate in initial coin offerings, a popular way for early supporters to raise funds for their favorite projects.
Takeaway
Angel investors play a crucial role in funding early-stage start-ups and getting them off to a strong start. Often, these investors bridge the gap between self-funding and taking loans from family and friends and receiving venture capital investments. As an investment choice, angel investors are rewarded with equity for supporting their preferred projects.