At some point in time, most businesses will need an infusion of cash for some reason. Whether it is startup capital or expansion capital, there are a number of ways to get the funding you need to start or expand your business. Traditional loans are one way, crowdfunding is another but another is to find an angel investor. In spite of what the name implies, there are actually both pros and cons to accepting funds from an angel investor. Here are some of the pros and cons to determine if seeking or accepting the help of an angel investor is right for you.
PROS:
- More willing to take risks
Banks use depositor’s funds to finance loans, so they don’t like to take risks. Banks generally only approve business loans for investments they consider to be tried and true or rock solid. If you have a business idea that is a little out of left field or doesn’t have a proven track record of being a sure-fire moneymaker, an angel investor might actually be your only option.
- You often get more than just funding
Angel investors aren’t just giving you a loan, they are genuinely investing in both you and your business venture. Therefore, they have a legitimate vested interest in seeing it succeed. To that end, they can often give you excellent business advice and open doors for you in addition to providing you with much-needed capital.
CONS:
- They are investors, not lenders
When a bank loans you money, all it cares about is getting its money back with interest. Once you pay off the loan, your business with the bank is concluded. Investors, however, generally get a stake in your company and that doesn’t end once their initial investment has been paid back.
- They get a legitimate stake in your company
Angel investors are not good Samaritans, they are investors that want to see a return on their investment – generally sooner rather than later. In some cases, you may find yourself pressured into decisions you are not comfortable with by your investors. People you need to listen to and work with because they also have a stake in your business.