Picture the scene. You’re eager to start a business. The concept and ideas are there but you don’t have the financial means to run one. When things look bleak, the cavalry suddenly arrives. Angel investors can be defined as investors providing financial aid for small-business owners and entrepreneurs within the infancy stage and beyond of all businesses. Though their aid and assistance are more than welcome for any business investor, there are several drawbacks investees must be privy to.
It goes without saying that when it comes to fledgling businesses these angel investors are often too happy to take risks and invest in fledgling businesses with promising potential. As established entrepreneurs whom have earned their stripes in the business world, they often understand the risk levels of various entrepreneurial scenarios all too well and have no problems handling them. While banks are also equally passionate in offering prospective entrepreneurs seed funding, they can also be restrictive with the money lent to mitigate the possibility of a loss. Angel investors however are more than happy in investing massive amounts should they see promise and potential in the establishment.
However, this is offset by the high expectations placed by these angel investors. As businessmen, it’s only natural to invest in something one can be assured that will generate profits. No surprise that these investors expect exorbitant return rates from their investees; and often these exorbitant rates can be too much for them to handle. Should an angel investor be taken into consideration it’s important to determine if the profit rate can match their expectations.
Additionally, the presence of additional backup can mean that a business is more likely to succeed. They’re often valued as business veterans/elites and they often possess a gallimaufry of experience and knowledge in business. Angel investors are often the go-to people for business consultancy and advisory roles. However, this isn’t without its trade-offs. These angel investors can more often than not take an active role in decision making that can alter the outcome of your business. They may let the owners run wild and free, but they expect to be privy of the actions of their investees. Many a prospective entrepreneur also may not like the idea of relinquishing power to other people.
Lastly, the backup funding received by these investors aren’t loans. While bank loans often expect a repayment like all loans do, angel investors operate with a different approach. In exchange for seed funding and monetary aid, they’ll receive a share of ownership stakes in the company. Should the business succeed, they’ll take a portion of the profits and they won’t ask for a repayment if the business falls flat. However, a shared ownership will also mean that the investor can potentially earn the lion’s share of the investees’ profits.
Having additional reinforcements are always more than welcome, but there is no free service in this world. It’s important to weigh and analyze each potential factor before taking the plunge.
