angel investor
A high-net-worth individual who provides capital to early-stage startups in exchange for equity or convertible debt.
Example
“The startup's angel investor provided $250,000 in seed money in exchange for a 10% stake.”
Memory Tip
An ANGEL saves you. An angel investor swoops in to save your startup with money.
Why It Matters
Angel investors are crucial for entrepreneurs seeking startup funding without the strict requirements of venture capital firms or banks. Understanding this concept matters because it shows how early-stage businesses can grow and how wealthy individuals can diversify their portfolios through high-risk, high-reward investments.
Common Misconception
Many people believe angel investors simply give away money to help entrepreneurs, but they are actually expecting significant returns on their investment through equity ownership or debt conversion. Angel investing is a business transaction, not charity, and investors typically expect their stake to become valuable as the company grows.
In Practice
A software developer with a promising app idea pitches to an angel investor who provides 500,000 dollars in exchange for 10 percent equity in the company. If the startup is later valued at 10 million dollars after two years, the angel investor now owns a stake worth 1 million dollars, demonstrating how early capital can generate substantial returns.
Etymology
Angel (a benevolent being) — investors who swoop in to save struggling startups with funding.
Common Misspellings
Start investing with no commission trades
Related Terms
More in investing
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See Also
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