Study Words

What’s an “Angel Investor?” and what do they do?

Angel Investor – (noun) A former entrepreneur or professional who provides starting or growth capital in promising ventures, and helps also with advice and contacts.  They are deemed to be ‘angels’ in due to the help, support, and encouragement they provide.

Source: BusinessDictionary.com

[\ˈān-jəl\ in-ˈve-stər\ ]

This is part of an ongoing series explaining business English vocabulary, labeled “Study Words”. Previously we had talked about what bear and bull markets are. You can find more articles related to business and financial words in English by searching “study words” in the search box.

Investors are an important for any business goals. They are the people who provide money, support, advice, and guidance when it comes to what you need to do to start and manage your business. This is most true for the “angel investor,” who is a private individual (although sometimes a very small group of individuals) who invest in small startups and entrepreneurs in order to help make the next big company.

Often times, they may be a family member, friend, or close contact of the entrepreneur and will invest their own money, unlike typical venture capitalists who take care of pooled money from large groups of individuals or companies. Or it may simply be the case that they really like the company, and think it provides an important good or service. As you can imagine, this can be quite risky; if the company fails the the investor loses all of his or her money. In fact, according to Tom Britton, co-founder at SyndicateRoom, “50% of business go bust within the first few years”. 

Some angel investors, however, become incredibly successful. For example, I have previously talked about Tim Ferriss in my “mandating urgency” article, who has written “The Four Hour Work Week” and is the host of “The Tim Ferriss Show” podcast, was an angel investor for companies like Facebook, Twitter, Uber, and Evernote.

The term “angel” in reference to financing comes from 1930s era Broadway, according to investopedia.com, “when wealthy individuals gave money to propel theatrical productions”. The term then became “angel investor” in 1978, when University of New Hampshire professor and founder of the Center for Venture Research William Wetzel first wrote about the term in a study on how entrepreneurs gather capital.

According to the US Security and Exchange Commission (SEC), and angel investor must have a net worth of $1 million and an annual income of $200,000.

As mentioned previously, angel investors can be extremely important for a young new company. Take the case of google, according to Mathew Myes, CEO of Vision6 and guest writer for Entrepeneur:

This giant [google] controls over 68 percent of searches made on the internet, employs over 70,000 staff across the globe and is now worth $527 billion. Google’s earliest angel investors ultimately set the company on a fast-track to becoming the most anticipated public offering since the dot-com bubble burst.

If you are not familiar with the “dot-com bubble burst,” it was a period between 1999-2001 when many internet companies collapsed or failed. Some of the survivors of that period – Amazon, eBay, and Google, for example – have become giant companies. And especially for Google, the help of the earliest angel investors set it on a fast-track to success, or in other words helped provide Google the things it needed to become super successful later on.

Technology has also greatly changed angel investing, as angel investor Jason Klein in an interview with Alley Watch explains:

Concurrent with this growing tech scene was a growing angel investor community. The advent of an organized angel investing community allows people interested in the space to pursue angel investing much more seriously than I had ever imagined.

Because technology and angel investing were growing at the same time, these two things were able to come together and create a situation where more people interested in angel investing can try it more seriously than in the past. Notice we can say “angel investing” as a verb or adjective depending on the sentence.

The following terms below are also related to angel investor:

Business angel – (n.) (finance) less common version of “angel investor”
Venture capitalist(n.) (finance) a person who provides capital or cash to a startup project or someone who supports a small company that wishes to get bigger. A venture capitalist often provides expertise, and their objective is usually to bring the start-up or business to it’s IPO (initial public offering, the first time a stock of a company can be bought on the stock market) so they can sell their shares for a high price.
vulture capitalist -(n.) (finance) a negative term for an investor who plans to take control of the firm

Our next article (coming Friday) will be on “capital”. Friday will be Children’s Day here in Korea and I will be in Busan for a short trip (as well as an episode for our upcoming podcast) but it should be uploaded before 12:00 Korea Standard Time.

 

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