This article explains using angel investors as a funding option, detailing its pros and cons.
- What is angel investor / angel investing?
- Why do businesses need funding?
- How to find angel investors?
- Advantages of using angel investors / business angel funding
- Disadvantages of using angel investors / business angel funding
- Alternative to angel investing: revenue-based financing
- Is business angel funding a right choice for your business?
What is angel investor / angel investing?
Angel investors, also known as business angels, are high-net-worth individuals who put up funds for early-stage business ventures/startups in exchange for equity.
In many instances, angel investors have developed a personal or professional relationship with you (e.g. being a friend or mentor) prior to investing in your business. As such, they provide financial backing to your startup company because they have faith in you.
Why do businesses need funding?
Growth is a common reason for businesses or startups to obtain funding. Advertising, new hires and product launches — all these need money.
If growth and expansion are items on your company’s roadmap, then funding is something you need to learn about.
How to find angel investors?
Alongside finding friends and mentors who have a personal or professional relationship with you, you can also find angel investors through the following means:
- Angel List: AngelList is a platform bridging startups and angel investors/professional investors
- Angel Investor network/community in your country: for instance, Angel Investment Network has a network of 290,000+ investors based in the U.S.
- LinkedIn: Professional social networks enables you to directly contact an angel investor
Advantages of using angel investors
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Advantages |
Explanation |
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No repayment |
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Strategic support |
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Disadvantages of using angel investors
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Disadvantages |
Explanation |
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Equity dilution |
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Loss of control |
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Relatively small funding amounts |
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Less structural support |
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Alternative to angel investing: revenue-based financing
Revenue-based financing (RBF) is an alternative financing method in which companies receive funding based on future revenue.
In revenue-based financing, RBF platforms provide funding to companies without getting equity in return.
Rather, RBF platforms would share a portion of your company’s revenue until a predetermined amount is paid back. Typically, the predetermined amount is assessed at the capital plus a small flat fee.
Pros and cons of revenue-based financing
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Advantages |
Explanation |
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Flexible repayment |
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Non-dilutive |
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Grow at your own pace |
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Easy to apply |
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Low cost of capital |
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Disadvantages |
Explanation |
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Pre-revenue companies may not be eligible |
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In the past, startup founders and business owners were hesitant to raise funds from investors for fear of shared ownership or borrow money because of the huge financial pressure on repayment.
By taking away the most unfavourable feature of equity financing, revenue-based financing has found favour with startup companies in recent years.
Following the ‘grow now, pay later’ approach, these companies get the funding first and enjoy flexibility in repaying RBF funding with a small percentage of their monthly revenue later.
If you want to learn more about accelerating business growth with RBF funding, leave us a message or sign up to get a preliminary offer now!
Is using angel investors a right choice for your business?
Unlike venture capital firms, angel investors are generally more willing to work with companies without strong track records, such as those in the proof of concept stage.
If your business is still in an early, pre-revenue stage, business angels may be what you are looking for.
On the minus side, finding an angel investor who trusts you and whom you trust is not easy. It may take months or even years to find the right fit for your business.
Besides, raising funds from angel investors has an equity price tag attached. Therefore, it would be best to consider all ramifications of this funding method before kicking start your search for business angels.
To help you compare angel investing and revenue-based financing, Choco Up has compiled the following table:
|
Angel investors |
Revenue- |
|
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Application process |
Complex and time-consuming |
Simple |
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Repayment |
None |
Yes |
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Cost of capital |
High |
Low |
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Equity dilution |
Yes |
No |
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Loss of control |
Usually yes |
No |
Interested in learning more about raising capital for your company? Check out the following guides we prepared for you:
- Bootstrap Financing: Overview, Advantages and Disadvantages
- E-commerce Funding: A Guide to Your Options
- E-commerce Financing: Options to Finance Your Online Business
- Inventory Financing: Everything You Need To Know
- Invoice Financing: Everything You Need to Know
- Merchant Cash Advance (MCA): Everything You Need To Know
- How Bank Loans Work: Advantages, Disadvantages and Things You Need To Know
About Choco Up
Founded in 2018, Choco Up is the leading revenue-based financing platform in Asia Pacific, offering non-dilutive growth capital to fast-growing companies.
Currently covering more than 10 markets and 10 sectors, Choco Up has helped hundreds of businesses capture growth while protecting equity upside.
To learn more about what we do, check out our client success stories or apply for fundingnow!
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