Role of Angel investors by gcneophil9



The challenges of securing project finance necessitated the initiative of Angel investors,
it may comprise a wealthy individual who assists aspirant entrepreneurs with project
funds to start a new business or it can made up of a group of people contributing to a
pool of money, which they later use to fund their start ups.

This rare form of start up financing addresses the needs of people who otherwise have
to borrow from friends and family, the amount of money generated in this way is usually
low compared to the mainstream funding vehicles like venture capital financing.

Angel investments require high returns on investments due to the high risk nature of this
type of project financing.A large percentage of Angel investments fail in their infancy,
investors are very careful in their choice of projects to which they provide vital funding,
often aiming at those capable of earning them up to ten times of their invested capital.

This may take between two to five years allowing the project to seek funding elsewhere,
to further expand its business activities, in some instances leading to an acquisition
away from the next best alternative of seeking funds through an initial public offering.
The best approach for most angel investors is seek out higher returns opportunities, like
ventures that can at least have the potential to yield a 20x 30x return over a period of
five to seven years (holding period).

 The banks and other traditional means of accessing project capital are usually
unwilling to cover the needs of these start ups. And angels are their only viable source
but the investors will have to contend with the holding periods entailed in placing their
money in any start up or the unwelcome prospect of project failure, which usually takes
place in the very early stages.

The most realistic actual internal rate of return for a typical successful portfolio of angel
investments is typically as low as 20-30%. Investor are always actively needing high
rates of return on their investments, and thereby making angel financing an expensive
source of financing, with very little else in the form of alternative for the start up

In most cases, angel investors tend to be retired professionals, interested in angel
investing for other passionate reasons away from earning a lucrative return on their
investments. Some just want to enjoy the mentoring that goes with nurturing new
venture entrepreneurs, thus in addition to funding these projects, they provide useful
management knowledge, badly needed by the ventures. The new business project also
benefit from referrals from the investor's trusted sources and other useful contacts.

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