In the business world, the figure of the angel investor is very predominant. It’s thanks to them that many startups and emerging companies manage to obtain the much desired funding. If this catches your attention, allow us explain what you must do to become one.

What’s an angel investor and how to become one?

This is a term that came from the Broadway theatre decades ago. The word “angel” was used to describe wealthy individuals who gave money to theatrical productions that were about to disappear. In later years, this word began to be used to describe investors who gave money to companies. Generally to those that were emerging and required financing.

Most angel investors are entrepreneurs of advanced age who possess sufficient resources. But there’s a thing, the angel investor isn’t limited to giving money. But also to offer business-level advice and guide other entrepreneurs to start their own businesses. However, take into account that age isn’t a limit or an impediment when it comes to wanting to qualify to invest.

requirements to become an angel investor
Even before the arrival of crowdfunding, angel investors were one of the main financing methods of the moment. Source: Peak Capital

What’s required to be an angel investor will vary from country to country. Depending on the laws that exist in this regard (if any). But the truth is that you don’t need to be a millionaire or be wealthy to be an angel investor. Being one implies having “extra money” that you can invest without it affecting your daily life or economic sustenance. Even an investment of $10,000 is enough to consider yourself as such.

In the United States, there are laws that regulate investors. Particularly to those who aren’t accredited to be. The Securities and Exchange Commission (SEC) establishes what must be fulfilled to become an accredited investor. The first thing is to have a net worth (on your own or with a spouse) greater than $1 million. Or, have annual income of $200,000 or $300,000 (along with a spouse).

Risks and benefits of being an angel investor

As for any other investor, being an angel investor has good and bad things. Let’s start with the risks, always present in the world of investment. Any type of investment has risks since you’re investing money in an emerging company. Which could succeed or could also end up failing. This is when the importance of diversification comes in. Where it’s recommended to invest in several companies.

Among the risks involved in being an angel investor is the loss of the shares you buy in the company. Recall that depending on the investment you make, you get a percentage of the shares of the company. However, if you don’t secure preemptive rights with time your investment will lose value. Namely, if you obtained 10% of the shares now you’d only have 0.5%. Because the company dilutes the shares.

which are the risks of being an angel investor
When companies put their shares for sale, the shares are diluted. That’s why you have to protect the value of your initial investment the way we said. Source: Axial

In spite of everything, being an angel investor has a positive side. Being one allows you to meet entrepreneurs with innovative ideas that might interest you. Likewise, you can be part of a “angel network” where you can connect with other angel investors. And in turn, meet with emerging companies in which it would be worthwhile to invest and obtain a shareholding.

To invest in a startup or start-up company, you must have market knowledge. Being an angel investor makes you have to investigate and understand how a specific market moves. And you, as an investor, could be more interested in investing in startups in a market that you know well. Remember that the angel investor’s role isn’t limited to giving money but to offer guidance. As a market connoisseur.

which are the benefits of an angel investor
You can invest in various startups and gain experience as an investor. And to learn that investing isn’t just about obtaining benefits, but about boosting business. Source: Hacked

Angel investors can also participate in crowdfunding platforms. Particularly equity crowdfunding, within platforms where business and startup projects are published. And where investors choose which startups they like the most to invest in. If you think you have the capacity to become an angel investor, this is undoubtedly a good opportunity for you.

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Being an angel investor lets you boost business!