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Banking Term: Angel Investment

An investor who provides capital for small business start-ups and holds ownership equity in exchange is known as Angel Investor. Angel investment bears extremely high risks because they require a very high return on investment.

Dec 14, 2015 17:46 IST
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An investor who provides capital for small business start-ups and holds ownership equity in exchange is known as Angel Investor. Angel investment bears extremely high risks because they require a very high return on investment. The actual entity that provides the funding may be a trust, Business etc. To provide advice to companies, A number of angel investors organise themselves into Angel groups to share research and pool their investment.

Advantages of Angel investment:-

i. No repayments or interest
ii. Better discipline due to outside scrutiny
iii. Access to investors mentoring and managerial skills
iv. Angel investors are free to make investment decisions quickly.
v. Ability to make capital in small amounts
vi. Flexible business agreements
vii. It can provide the initial capital for start-up.
viii. It involves high risk investments and to optimize the risks in initial phase a large amount of returns is requested by angel investors to Counterbalance it.
ix. Do not require high monthly fees as bank loans & credit cards require.
x. Under the leadership of angel investors, vast knowledge & experience is carried in new company as benefits.

Disadvantages:-

i. It takes a lot of time to find a suitable Investor.
ii.
Giving up a share/portion of your business.
ii.
It provides less structural support available from a BA than from an investing company.
iv.
Angel investors rarely follow on investments because of associated risks with losing more money.
v.
There is no national registration/recognition of angel investors.
vi.
Angel investors often require a stake in company in exchange for making investments to start up business. So, it can be costly.
vii.
Due to investments, angel investors have certain level of control over companies to meet their ambitions/expectations which in turn may lead to several problems.
viii.
In some cases, money is not returned by the angel investors and in such cases, money is invested in promoting their business.

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