What Is a Business Angel?

Also known as angel investors, business angels are individuals or companies that provide funding and other resources that aid new as well as existing companies in their efforts to reach consumers and capture market share. A business angel is often the source of revenue that can be used to help launch a new business effort, or even help an existing business with a new project. At other times, the angel investment may include the offering of other resources, such as time to help with the business launch or providing the benefit of his or her connections to help the business move toward its goals.

The term itself has to do with the concepts of angels in many cultures as beings who provide comfort, counsel, and aid to humans at crucial points in their lives. A business angel normally encounters an entrepreneur at a time when there is a significant need for assistance, often financial but sometimes in terms of other resources. Thanks to the willingness to make some sort of angel investment, the entrepreneur can pursue his or her goal of establishing and growing a business and have a much better chance of succeeding.

Many think of the business angel or angel investor as contributing only financial resources to a business. While this is certainly the case in many instances, the contributions of the angel investor do not have to end there. Depending on the level of rapport that is established between the business owner and the investor, there are also other ways to support the organization and increase the chances of turning a profit on that investment. A business angel with considerable experience in managing a company or acting as a financial officer, or even an investor with practical experience in organizing and managing a production floor may also choose to invest time in the new business venture.

At the same time, the business angel may also use his or her business and social contacts to help the new business effort grow. Those contacts may include vendor partners who extend discounts for goods and services to the new venture, based on their pre-existing relationships with the angel investor. The contacts may also provide the means of allowing the new business to get their products in front of potential clients who otherwise would not be interested in talking with an as-yet unproven company.

A business angel is often compensated in terms of interest paid on funds loaned to the receiving company. At other times, additional benefits such as shares of stock or other compensations for support rendered may also be included in those returns. As with any type of investment opportunity, the business angel will asses the potential of the effort, including the level of risk involved, and make a decision on what type and how much of the available resources will in fact be diverted to the opportunity.