Originally, the term “angel” was associated with investors who provided financial support to Broadway shows. However, the meaning of the term has evolved over time, and it now encompasses anyone who invests their money in a startup or entrepreneurial company. These modern angel investors are typically high net worth individuals willing to fund early-stage ventures in exchange for convertible debt or equity in the company. They play a significant role in supporting the growth and development of innovative businesses and often offer valuable guidance and mentorship to the founders. Angel investors are essential in filling the funding gap between initial contributions from friends and family and the later-stage involvement of venture capitalists. They take calculated risks in the hope of achieving a profitable return when the startup becomes successful or is acquired by another company.

To be considered as angels, these investors are not only wealthy but also meet the SEC’s definition of accredited investors. This means they have an annual income of over $200,000 (or $300,000 for joint income) for the past two years or possess a net worth exceeding $1 million in investable assets, excluding their primary residence.

Angels often have substantial experience as entrepreneurs who have successfully built their companies and now wish to support the next generation of entrepreneurs. They offer more than just financial backing; they also provide valuable hands-on advice and mentorship, drawing from their own experiences to guide the founders.

While angels expect a profitable return on their investments when the startup eventually goes public or gets acquired, they are well aware that the odds of hitting a massive success with any one investment are relatively low. Nonetheless, they are willing to take calculated risks and invest based on their informed judgment and expertise.