I’m pretty sure you are surprised. What could be the possible relationship between ‘angels’ and business? For the religious ones, ‘Angels’ are known to be members of the heavenly host, and servants to the creator. For others, ‘Angel’ depicts sophisticated beauty either facially or character wise.
The term “Angel” in business however, refers to wealthy individuals who invest at seed and infant stages of start-ups with a reward of ownership equity or convertible debt. These angels are usually retired entrepreneurs or executives with high risk tolerance, and are sometimes interested in investing for reasons beyond money such as: wanting to be updated on developments in a particular field; mentoring purposes; or utilizing their experiences on a part-time scale.
Angel investors are categorized into four based on their motivating purpose, mode of operation and level of involvement. They include:
+ Entrepreneurial Angels
+ Financial Angels
+ Guardian Angels and
+ Operational angels
We are not referring to the religious Angel Michael, or angels assigned to us for protection. They are entrepreneurs who later become investors. They usually invest in their areas of expertise, and have functions of providing for financial needs and contacts, credibility, industry knowledge and mentorship.
Like the guardian angels, entrepreneurial angels have been entrepreneurs too. However, they differ from guardians in the fact that, they do not solely invest in their areas of expertise. They are interested in helping entrepreneurs in other areas. Thus, they provide for financial needs and contacts, start-up knowledge but not industry knowledge (when their area of investment is not their area of expertise).
These angels have most likely not founded a company themselves, but usually invest in startups in their field of expertise. They are most often executives of major companies, who by virtue of managerial experiences can validate a venture concept. They also provide credibility, strategic and operational guidance.
When we said angels are wealthy with high risk tolerance, financial angels seamlessly fit the status quo. They aim to maximize their profits and returns by investing in start-ups; usually have limited entrepreneurial and industry experience, with little involvement in the start-up. Financial angels are usually short term investors, and are from all walks of life.