What is angel investing and how does it work?

What is angel investing and how does it work?

On Behalf of | Jan 9, 2023 | Business & Corporate Law |

It will come as no surprise to you that starting any new business requires money. Sometimes, it takes a lot of money. While some people may be able to acquire the capital they need through savings or loans, others will need to turn to more unique and alternative ways of funding such as crowdfunding and angel investing.

Angel investing is an option for new start-ups

The angel investor will usually offer to fund startups that have promise but would otherwise not be able to access traditional forms of lending. In exchange for the investment, they are given a percentage of the business.

How does angel investing work?

An angel investor usually injects funding into a startup when it’s in the very initial stages of inception – sometimes when it’s even still an idea – but especially when it’s still in the funding stage.

If an angel investor decides to invest money into a company, they’ll work with the founders to carry out due diligence and to make sure that the business idea is sound and viable. Once both parties agree to go ahead with the transaction, they will go through the usual legal process of preparation and signing contracts before the money is released.

As a new business, working with an angel investor has both benefits and drawbacks that you need to be aware of. While it offers a line of credit without traditional forms of lending, it does usually mean giving a stake in the business to a third party and sharing any profits with another person.

Before working with any investor, it’s important to carry out due diligence to make sure it’s going to be the right decision for you and your business in the long term.