Why do Angel Investors Invest in Start-ups?
If you have a start-up or are considering it, you may have heard of angel investors. In short, this is the term used for wealthy investors who finance businesses that may just be starting, have a profitable idea for a new product, or a way to expand their range. You might wonder why they do this. So here are some of the possible reasons.
A share of the company they invest in
The most common reason for investing in a start-up is to have a share of the company so that they also share in the profits. Although, angel investors usually have to see potential in the start-up and the vision behind it, and won’t just invest in anything that can make them a profit.
One company that has benefited from angel investors is ThirdLove, which attracted some well-known names as investors, including Susan and Anne Wojcicki, and Michael Zeisser. This aided the founders, David Spector, and his wife, to expand the sizing of their range of bras so that more customers could find a perfect fit, and to add more products to the bra and underwear ranges.
The chance to expand their portfolio
Investing in a successful business looks great on any business leader’s profile. So, by putting money into a start-up that may have promise but lacks the funding, an angel investor can add this to their list of business successes. There is never any certainty in start-ups, but experts with lots of knowledge and experience know what to look for and which are most likely to succeed with the right financial help. They can also use their experience to reduce the risks and increase the chances of the start-up being successful.
A good networking opportunity
Being involved in a successful start-up can also help with networking. The more other business leaders see a name linked to a successful start-up, the more the investor’s profile is heightened. This can lead to other opportunities, increase their net worth, and help them if they choose to pursue other prospects.
A way of giving back
Angel investors can also invest as a way of giving back. Although the equity in a company and being connected to a successful business or range of products is a good motivator, they will often choose a start-up whose values align with their own. This means they can invest in something they support and feel strongly about, while still benefitting in other ways. It makes good business sense to do this if they have the money to invest, see a good chance of making a profit, and also want to make a big public statement about who they are and the values they hold.
So, there are plenty of reasons angel investors choose start-ups to put their money into. Making money may be the main one, but unlike some other investments, it can create many other benefits for them, as well as for the start-ups themselves. Because of the risks, they may be more selective about where they invest but can have some control over the outcome.
