There is a lot of talk of angel investing on social media, however, it is far less prevalent than you might believe. Still, what exactly is angel investing, and is it a worthwhile investment strategy?
Angel investors are affluent individuals who assist funding startups. They descend from their lofty financial heavens, to make payments, either one-time or ongoing, in exchange for equity in promising businesses. Unlike other forms of investors—private equity firms, venture capitalists, and stockholders like you and me—the money frequently comes with a mentor–mentee connection between the investor and the company's founder(s).
That’s because angel investors tend to put their dough behind founders they know personally—like their friends and children—and in industries where they’ve found success before. Angels provided $25.3 billion in company funding in 2020, a 6% increase over 2019, according to data from the University of New Hampshire.
Angels provide money at a very early stage in a company's life, as opposed to other investor cash, which is why angel investing is so hazardous. You must be an accredited investor to be an angel.
The SEC prohibits investors who possess insufficient assets or who lack financial markets knowledge from angel investing, Because the chance of failure and losing your money is significantly higher than other forms of investment.
Are these the next huge money-making opportunity? Most likely not. Codie Sanchez, an angel investor, said this on a podcast in 2021:
"Once you've made a few million dollars, and I mean that literally, then I think go into angel investing, or if you're on a path where you're making really good money and you've made at least half a million bucks, then I think you can start angel investing, but until then, let other people lose money and learn from it."