Angel Investor Definition

What Is an Angel Investor?

An angel investor, or angel donor, is an individual or group who provides early financial backing to startups or entrepreneurs with limited access to capital.

Typically, this is in exchange for ownership equity.

The angel funding provided may be a one-time investment or an ongoing flow of supportive capital.

Angel investors provide support for new businesses at their earliest stages where the risk of failure is high.

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What Are Angel Investments?

The purpose of an angel investment is to support businesses that show high potential but that may not have access to traditional financing.

Many new businesses do not have an established credit history, for example, and so may not have access to bank loans.

Besides money, an angel investor may also make an investment deal for other reasons, such as:

  • To provide mentorship to a new generation of entrepreneurs
  • To keep current with developments and fund innovation in a field
  • To allow others to make use of the investor’s connections and capital

Associated Risks of Angel Investments

Because of the high risk of failure associated with investing in new businesses, angel investing is unique in several ways:

  • Angel investors have a higher internal rate of return than conventional investments—sometimes targeting 10 times their original investment.
  • Funds provided by angel investors come from an amount that the angel can afford to lose.
  • For this reason, angels typically do not allow angel investments to constitute more than 10% of their total investment portfolio.

Leave the job to us

Need help finding an angel investor or interested in becoming one? Either way, let us know how we can be of help by reaching out to a financial advisor in Los Angeles, CA. If your residence is outside the vicinity, please visit our financial advisor page to see a full list of the areas we cover.

Angel Investing FAQs

An angel investor is an individual or group who provides early financial backing to startups for entrepreneurs with limited access to capital.
Angel investors make money by investing in companies in exchange for ownership equity. If a venture performs well, the angel makes money through their sale of ownership equity of the companies they own a stake in.
Angel investments are a high-risk, high-reward undertaking. That is because most new ventures fail, while some ventures end up performing extraordinarily well.
The purpose of an angel investment is to support businesses that show high potential but that may not have access to traditional financing.
Angel investors might also offer mentorship to a new generation of entrepreneurs or allow them to make use of the investor’s connections and capital.
True Tamplin, BSc, CEPF®

About the Author
True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True contributes to his own finance dictionary, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website, view his author profile on Amazon, his interview on CBS, or check out his speaker profile on the CFA Institute website.