You’re reading an excerpt of Angel Investing: Start to Finish, a book by Joe Wallin and Pete Baltaxe. It is the most comprehensive practical and legal guide available, written to help investors and entrepreneurs avoid making expensive mistakes. Purchase the book to support the authors and the ad-free Holloway reading experience. You get instant digital access, commentary and future updates, and a high-quality PDF download.
Although this book contains a lot of legal information and is intended in part to be a guide to frequently encountered legal issues, it does not constitute legal advice, nor the establishment of an attorney–client relationship with any reader. Nor does this book constitute financial advice. You should always consult with your own legal and financial advisors before investing in a startup or early-stage company.
Angels invest typically in very early-stage companies, providing capital for growth in exchange for equity—partial ownership—in the company. That equity can translate into enormous rewards, or nothing at all—angels tend to have an appetite for risk, and the means to take risks with confidence.
An angel investor might consider herself a patron of experiments, the first outsider tasked with judging a company’s real potential for success.* That outside money can become, for those who choose to let it, a path to the inside, where an angel becomes an advisor and confidante, helping founders make good business decisions and supporting them when things get tough. Other angels will choose a less involved path, staying out of the company’s way after making their initial investment.
Angel investing is different from other types of investing. Like venture capitalists, angels typically invest in companies they hope will grow rapidly and eventually reach a liquidity event. But as the earliest outside investors who do not invest through institutions like VC firms (though individuals may invest as part of an angel group), angels take on more risk. Their investments are also typically smaller than those that VCs make; while VCs can invest tens of millions of dollars (or a lot more), angel investments are typically $25K–$50K and top out at $100K, though they can go higher. To make an investment, an angel must be deemed an accredited investor (which we’ll discuss in detail), meeting income and asset thresholds set by the Securities and Exchange Commission.