Unicorns, pivot, and business angels—the world of startups is full of terms that you may not understand at first glance. Mastering these terms and their concepts is an essential step for those who want to create their own business. 

If you have been doing some research on startups, you’ve probably seen business angels mentioned somewhere. In this article, you’ll learn the meaning and importance of them to the entrepreneurship ecosystem around the globe.

What are Business Angels?

When a group of wealthy investors from uptown Manhattan in New York City decided to invest money in the Broadway musical scene, they were seen as angels in that industry. These investors brought a lot of opportunities to producers who were willing to launch new shows but didn’t have funds.

Since then, the term “business angels” (or sometimes “angel investors”) has been used to define independent individuals who provide capital for the development of businesses. 

The Importance of Angels For the Startup Universe

The early stages are the toughest times for startups. There is a huge gap between creating an idea to actually having a profitable business.

Business angels play a vital role in this initial step, as they’re the major source of venture capital financing in the early stages. Angels are those who fill the gap that lies between the start-up and seed capital stage.

Money isn’t the only resource a startup can receive from private investors. Since many business angels are former executives of larger companies, they can also provide valuable advice and create important connections between founders, entrepreneurs, and corporations.

Having a business angel can be the reason for success and growth for startups. According to a report from Harvard University, startups funded by angel investors have higher chances of survival. It also shows:

  • Angel-funded firms are also more likely to show improved venture performance and growth as measured through growth in website traffic and website rankings.
  • Investment success is highly predicated by the interest level of angels during the entrepreneur’s initial presentation and by the angels’ subsequent due diligence.
  • Access to capital may not be the most important value that angel groups bring. Some of the “softer” features, such as angels’ mentoring or business contacts, may help new ventures the most.

Angel investments are considered high-risk, however, these individuals are enthusiasts of the industry/cause they’re investing in. 

Business Angels Vs. Investors

A startup can be funded by different types of private investors, but, it’s easy to distinguish business angels:

  • They invest their own money into a startup project and it’s usually more than a venture capitalist would.
  • Make investments decisions independently.
  • They usually invest in industries or causes they relate to.
  • The main objective of a business angel is to have a return on their investment.

Business angels are an important ally to take your business off the ground and step into growth. In order to make it happen, you need to know how to pitch your startup idea, showing exactly where you want to go.

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