Angel investing, just like any other investment in a startup carries a lot of risk. Most angel investments don’t end up providing the investor with a return, let alone paying dividends. In light of this, why do angel investors put their money at risk backing new ventures? Keep reading for four of the reasons that an investor might take this kind of risk.
Like other high risk investments, investors can lose only as much as they have put into the business but if an angel investor has an equity share in the business, they could stand to make their initial investment back many times over. One successful investment can make up for many failed investments, which means that investors are always looking for a venture which holds the promise of a substantial return on their investment.
Business & Personal Connections
Entrepreneurs often have colleagues who are familiar with their work, especially if they have started multiple businesses; and these people will often support their ideas. Friends and family are also potential investors since these personal connections are so strong and the people who know you best will have a good idea of how you handle your business. This puts them into a good position to decide whether your idea is one with a good chance of success.
A majority of angel investors are experienced businessmen and women who believe that their skills and expertise can help the business they’re investing in and if they think that their knowledge is what your venture is missing, they’re much more likely to invest. An experienced, knowledgeable investor can be a wonderful thing, since it takes great ideas, knowledge and capital to succeed. Think of the investor’s help as a valuable asset rather than an impediment.
Risk & Reward
One of the first things every business student learns is that high risk should be accompanied by high rewards. One thing which attracts many angel investors is the high risk of investing in startups as well as the possibility of a large return on their investment. While they’re fully aware of the risks, the potential rewards can be so great that they simply cannot pass on the opportunity.