What Is an Angel Investor?
Unlike venture capitalists who rely on an investment fund to invest in startups, angel investors use their own capital to invest in early-stage startup ventures in exchange for an equity percentage based on their initial funding. In the crypto industry, this usually takes place during initial coin offerings (ICO), in which angel investors get to join private sales of newly launched coins prior to public sales.
Angel investors — sometimes known as private or seed investors — may come from the family and friends of the entrepreneur or crypto developer, wishing to show their support for the venture either with a one-time contribution to send the crypto project off to a good start, or regular investments to sustain the company through its initial phase.
Other angel investors may be using their angel investments as a show of faith in the crypto project, and/or as a way of diversifying their investment portfolio and expanding their wealth while contributing to the launch of a new venture. While they may be well rewarded for taking a risk on a successful early-stage startup — earning interest beyond what they might receive from standard financial investments — such investments are risky. There’s always the possibility that they may lose their investment completely should the startup fail. Therefore, these angel investments typically don’t take up more than 10% of an angel investor’s portfolio.
Advantages of Having an Angel Investor
Angel investors typically tend to be patient and encouraging toward entrepreneurs and/or crypto developers in whose ventures they’re investing. They may even be willing to inject small investments regularly on top of their initial investment to keep the project going. This is because their investment is coming from their own funds — and chances are good that they understand the difficulties in the initial phase of any early-stage startup.
With financial backing from angel investors, crypto developers may be equipped with the additional funding they need to continue developing their crypto projects until they gain traction. This allows them to provide more incentives to miners and traders, develop more innovative features, and in turn boost the overall robustness of the blockchain industry. Rather than exchanging equity in the business, crypto developers may offer utility tokens to investors, allowing them to undertake specific functions on the network. This means that, unlike loans, they don’t have to repay the funds (usually with interest), should their venture fail.
Ultimately, with their own money at stake, most angel investors are highly motivated to see the ventures they’ve invested in succeed. Therefore, they may work hand in hand with entrepreneurs or crypto developers, offering mentoring or management advice to steer the business toward success so that they, too, can profit from it.
Since many angel investors tend to come with a wealth of experience — as well as extensive resource networks — they’re also readily available to assist with networking, marketing and advertising to bring the business venture forward. Hence, startup entrepreneurs and crypto developers can benefit far beyond monetary terms from the investments of angel investors.
Disadvantages of Having an Angel Investor
Although angel investors may be more nurturing than venture capitalists in fledging startups or crypto projects, it’s worth bearing in mind that angel investors also have their own interests and exit strategies. Generally, their main goal is to earn higher returns than those offered by traditional investments. This means they’d like to be able to profit from both the funding and the efforts they’ve put into the venture at some point — either by pushing the crypto toward a higher valuation or diversifying its blockchain technology.
Angel investors also tend to hold higher stakes in startups as a result of their contributions. Hence, crypto developers may find themselves losing some say in their own crypto project, should these investors decide that they have more profitable business ideas. Therefore, crypto startups and developers may need to be conscious of the equity they wish to exchange with investors for angel funding — especially when it may dilute their own stake in the business and lead to loss of control over their own crypto projects.