Do Angel Investors Have To Be Accredited?
Starting a business can be both exciting and intimidating. If you are an innovative entrepreneur, you likely have a fantastic idea that you believe could be a real business opportunity. Extensive planning before making heavy investments is key to growing your business into a successful company that may even eventually partake in an equity offering. Given that many start-ups fail, it is crucial to do your own research. That’s why speaking to a small business start-up advisor before plowing into your project is a great idea.
Here, we look at the idea of angel investing to evaluate whether it is an option for your business. More importantly, we investigate the advantages and disadvantages of angel investing and whether angel investors need to be accredited to be considered.
What Are Angel Investors?
Angel investors are individuals who invest in companies at their start-up stages. Angel investors have a great deal of wealth, which is how they can make these investments. How they invest is up to the individual and business owner to negotiate. Some simply want an equity stake in the company, while others may want to be far more involved in the company’s day-to-day operations. Angel investors may only invest in the company once or provide ongoing capital to a firm to help it become a profitable entity.
Do Angel Investors Need To Be Accredited?
In the US, angel investors need to be accredited. The situation may not be the same worldwide, but in the US, you must have earned more than $200,000 in the last two years or have a net worth of more than $1 million to be accredited. In addition, your primary residence cannot be included in your net worth.
Advantages Of Angel Investors
There are many benefits to raising capital through angel investments.
Firstly, it could be the only means available to you when your company is at such an early stage. You may have little more than an idea, but you may be able to raise capital with the right angel investor. That’s because angel investors tend to be far more flexible and dynamic than traditional financing organizations, such as banks and venture capital firms. They also tend to be quicker at making their final investment decision.
They may not need or want repayment of their initial investment, other than through a profit share. Essentially, if your startup does not fail, they do not necessarily demand their investment back. In addition, angel investors will often be more open to riskier ventures and tend to be more open to flexible profit sharing terms.
Finally, if they are savvy business people, you can also leverage their business knowledge and contacts. Their presence in your company can be invaluable and a factor in the success of your business. At later stages, angel investors may also help a company attain additional funds with venture capital.
Disadvantages Of Angel investors
The main disadvantage of having an angel investor in your company is that you do not own your entire business. That means you will not only have to run many business decisions past them beforehand, but will also have to split your profits as per the initial agreement. While that may be a drawback that is easy to make peace with, some may resent having to give up a large percentage of their firm.
Some business owners do not like the added pressure that having an angel investor partner creates. Angel investors are attracted to start-up companies due to the enhanced returns they can expect should the company succeed. As a result, they can be far more involved and demanding than a bank that lent capital would be.
Final Thoughts
Angel investors can be a fantastic investment source for a business owner at the start-up stages of their company. By using an accredited angel investor, business owners can be assured that the capital comes from a reputable source. In a day and age when online fraud and money laundering are becoming more prevalent, it is essential that entrepreneurs aren't taken advantage of and inadvertently become involved in illegal activity.