Advantages and disadvantages of angel investors

March
22, 2021

3 min read

Opinions expressed by Entrepreneur contributors are their own.

A startup has the advantage of being able to raise capital at any stage of its life cycle, because the venture capital ecosystem is highly evolved and allows people or institutions to support companies at any stage of maturation.

One of the most recurrent figures in this process is that of the investor angel for the first stages of the project, since the amounts that can be bet on these entrepreneurs are small tickets that can be covered by the famous FF&F ( Friends, Family & Fools ) .

Consider that an angel investor can be your rich uncle who has available capital that he can lend you, a friend who believes in your project or a much more professional angel investor, that is, who is dedicated to the business, who understands how the startups, you probably have an investment thesis and can contribute smart capital and relationships to push you to the next stage of maturity.

It is a great source of financing that comes from angel investors, however, before making a decision, you should make an analysis of your needs, objectives, risks, taking into account the advantages and disadvantages of having an investor of this professional type or not:

^{Image: Isaac Alcalá / Entrepreneur en Español}

Advantage:

• The first advantage is that angel investors do not depend on an investment vehicle or other investors to make a decision, that is, it is a much faster process than a venture capital (VC), whether professionalized or not.

• In the case of going to an informal angel investor, that is (FF&F), there are usually no guarantees or personal assets that are committed for that investment.

• You can have access to knowledge in case the angel investor you approach is an expert in the industry and in startups.

• If the angel investor is close to the industry in which you operate, you will surely have access to industry contacts.

• If you are part of the FF&F, they probably won’t charge you interest.

Disadvantages:

• An angel investor who is not an expert in the topic of investing in startups, may not be the one for your company, investment is not only capital, but the value that accompanies it.

• In any case, as in the VC’s, the angel investors ask you to be partners in your business. The problem is that if you are an angel investor of the FF&F who does not have knowledge of how the exchange of capital for equity works and you do not make it clear, you will surely have a serious problem for the company in the future.