The Benefits and Downsides of Angel Investors to Entrepreneurs

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Having a high-net individual who is ready to provide capital for your business may be a good idea because its advantages outweigh the disadvantages.

As interesting as it sounds, it also comes with its downside. Here are the benefits and the challenges you will likely face when you have an angel investor in your business

Benefits:

Access to Capital

You have a business idea that is worth a million dollars but you don’t have the finance to make it a realistic one? Angel investors would make it possible through their funds.

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Suppose angel investors are convinced and buy your business idea, and believe in your entrepreneurial spirit and vision. In that case, they will be willing to provide the much-needed capital for business actualization.

Attractive to the general public

The funding can be used to develop new products, expand operations, and even hire new employees. Their investment in your company or idea is enough to attract other big investors locally, and globally, and automatically catapult your business expansion and acceptance by the general public.

Expertise and experience

Globally, angel investors are either successful entrepreneurs themselves or successful people in their chosen careers. Their experience in the business world or politics and governance can provide valuable guidance and support to your business.

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According to a survey conducted by Harvard Business School, at least 54.8 percent of angel investors in the United States have experience as entrepreneurs and support startups with an average of $39,000 compared to their counterparts without entrepreneurial experience that support startups with an average of $28,000.

You can tap into their strategic experience and deploy such experience in planning, product development, and marketing, and strengthen the dominance of your product or service in your sector.

For a startup, the expertise of angel investors can make a huge difference in terms of connection and courage to avoid common mistakes new businesses pass through.

Free mentorship

Mentorship is worth more than a billion dollars. But this is something you would get free of charge if you have angel investors pick interest and believe in your business vision.

No investors would want to see their investment go off the radar, so they will always be there to mentor you. The success of your business isn’t only their joy, but also a great Return on Investment (ROI) for them.

Networking opportunities

Angel investors often have extensive networks of contacts in various sectors, which can incredibly boost the success rate of your startup. The connections have the potential to lead to new customers, partners, and suppliers, and can open doors that might otherwise be closed to the entrepreneur.

Credibility

If you have an angel investor on board you can give your business increased credibility and visibility in the industry. Imagine Bill Gates, Elon Musk, and Aliko Dangote as angel investors. Imagine the kind of credibility and connections your business would have.

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Flexibility

While the traditional sources of capital such as venture capitalists and banks might impose strict requirements or demands on your business, angel investors would only align and work with your vision. This flexibility allows your business to focus on other important things such as growth, expansion, and profit maximization.

Long-term support

Angel investors are more likely to stick with your business even in the face of challenges than traditional sources of funding. During times of setbacks, they can nurture, provide guidance and support as the business evolves.

Higher survival rate

Startups that have the support of angels are more likely to survive than a loner startup. Research by the National Bureau of Economic Research (NBER) titled, “The Globalization of Angel Investments: Evidence across Countries” says at least 14 per cent of startups with angel backing are more likely to survive for 18 months or even more than firms that are not supported.

The researchers who studied 13 angel investment groups in 12 countries such as Germany, New Zealand, Belgium, Canada, China, Argentina, Italy, Mexico, Switzerland, the U.S., and Australia, such startups were more likely to expand and win new rounds of funding.

The Challenges

The capital, contacts and experience of angel investors can might shoot you into a powerful voice in your industry, but here are potential challenges you will likely face:

Loss of control

One of the biggest challenges you might face is the potential loss of control over your own company. They often require a significant ownership stake in exchange for their investment, which means you may have to give up a certain amount of decision-making power.

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This can be especially difficult for founders who have a clear vision for their company and want to maintain control over its direction. This cannot happen when you have the highest stake or when you’re the 100% financier.

Potential Pressure

Working with angel investors can also put pressure on you because they are investing their own money, they want to get real value for their investment, so they tend to be more hands-on and demanding than other types of investors. This means you must be ready to work at their pace, be smart and intelligent.

Potential conflicts

There is always the potential conflict of interest, idea, and implementation especially when the angel investor is an influential voice in politics.

If conflicts between angel investors and entrepreneurs are taken with levity, it can lead to a failed partnership and can even affect the success or growth of the business.

Summary

  • Having an angel investor on board can provide startups with more than just financial support.
  • They give entrepreneurs invaluable expertise, experience, and connections to grow the business.
  • You may lose some level of control when you have angel investors on board, so you must weigh the risks involved.

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