Entrepreneurs in California and throughout the country could benefit from what is known as angel investing. An angel investor is generally a friend, family member or professional connection who is more interested in potential than profit. Of course, such an investor is hoping to get a return on his or her investment. However, a business owner may not be on the hook for repaying the investment should the company fail.
Generally, angel investors will take a portion of the company’s equity or future profits in exchange for their money. According to the SEC, a person may only obtain this label if he or she has a net worth of at least $1 million. Furthermore, that person would need to make $200,000 annually if single and $300,000 annually if married. In most cases, an angel investor expects to see a return on capital within about seven years.
Ideally, this person will have business experience and be able to offer advice or hands-on guidance to an organization. Business owners are encouraged to consider both individual investors and those who work in groups. Some angels prefer to pool their money together, and groups such as the Angel Capital Association can help businesses find investors who may be interested in partnering with their companies. Online platforms also exist where business owners can solicit capital from angel investors.
Those who own a start-up company have many different potential funding sources to choose from. However, if entrepreneurs choose to partner with an angel investor, it may be a good idea to have an attorney review any agreement reached. This may ensure that a business is not losing too much equity or giving up too much in future profit. Ultimately, an attorney may help companies protect themselves today and in the future.