What Is an Angel Investor? Definition and Guide

Start selling with Shopify today

Start your free trial with Shopify today—then use these resources to guide you through every step of the process.

Start free trial

What Is an Angel Investor? Definition and Guide - Shopify (1)

What Is an Angel Investor? Definition and Guide - Shopify (2)

What Is an Angel Investor? Definition and Guide - Shopify (3)

blog|Starting Up

by Shopify Staff

Nov 11, 2022

What Is an Angel Investor? Definition and Guide - Shopify (4)

An angel investor is a wealthy individual who provides funding for a startup, often in exchange for an ownership stake in the company. Typically, angels, as they are known, will invest somewhere between $25,000-500,000 to help a company get started. In many cases, angels are the last option for startups that don’t qualify forstartup business loansor may be too small to interest a venture capital (VC) firm.

Unlike VCs, however, which demand aggressive revenue growth quickly, angels are more concerned with the commitment and passion of the founders and the larger market opportunity that they have identified. While angels don’t want to lose their money, they aren’t typically as focused on making a quick buck as VCs are.

See also:The Entrepreneur's Guide to Small Business Finance and Accounting

Term origins

The term “angel” once referred to wealthy individuals in the Broadway theatre community who would step up to save a production from closing its doors. Centuries before that, we had patrons, who supported artists and creative professionals financially so that they could focus on creating new works. Angels are the modern-day equivalent of sympathetic financiers.

What angel investors want to see

While angels may make the difference between a startup’s growth or closure, they are, first and foremost, investors. They are not interested in giving their money away – they do want it back at some point. To improve their odds of getting their investment back, with appreciation, angels often consider the following when evaluating businesses:

Experience or track record of founders
Viability of business plan
An innovative or disruptive product or service
Whether the business is scalable
Existing revenue
An exit strategy

When making a pitch to an angel, keep these points in mind.

Finding angel investors

If you believe you’re a good fit for an angel investment, you’re probably wondering how to find one. Some of the most common connections happen through:

Lawyers
Accountants
Venture capitalists
Crowdfunding sites
Regional angel networks
AngelList.com

Start by asking your advisors, such as your attorney and accountant, who they know who might be a fit for your company and its financial needs.

Massachusetts LLC: How To Start an LLC in Massachusetts in 12 Steps
Minnesota LLC: How To Start a Minnesota LLC in 11 Steps
Mississippi LLC: How To Start an LLC in Mississippi in 11 Steps
Open-Source Ecommerce: 6 Open-Source Platforms for Ecommerce Stores
North Dakota LLC: How To Start an LLC in North Dakota in 11 Steps
6 Top B2B Ecommerce Websites Tailored to Small Businesses
Hawaii LLC: How To Start an LLC in Hawaii in 11 Easy Steps
Indiana LLC: How To Start an LLC in Indiana in 12 Steps
How To Start a Business in South Carolina in 8 Easy Steps

Angel Investor FAQ

How does an angel investor work?

An angel investor is an individual who provides capital to a business or entrepreneur in exchange for an equity stake or convertible debt. Angel investors typically invest in early-stage companies with high-growth potential. They are willing to take risks on unproven companies and typically look for a return on their investment within five to seven years. Angel investors typically provide advice and guidance in addition to capital, helping the entrepreneur to build their business and increase the probability of success.

How does an angel investor get paid?

An angel investor typically gets paid through a return on their investment, either when the company they invested in goes public or is acquired. This return can be structured in the form of a one-time payout, or through a series of payments over time. Angel investors may also receive a portion of the company’s profits or a share of equity in the company.