Angel investors often back the riskiest of start-up enterprises. If your business idea is completely unproven, and a traditional bank won't help you, angel funding is one alternative available to you. Angels invest for a wide variety of motives besides a financial gain, but professional angels will hope to see a decent return on their investment.
Because of the high risk of angel investing, angels tend to demand high returns. According to the Center for Venture Research at the University of New Hampshire, on average angels expect a 26 percent annual return. However, they also accept that about one-third of the investments they make will not pay off.
In a Down Economy
Figures from the National Venture Capital Association show that in a recessionary economy, angels must be satisfied temporarily with lower returns. Three-year returns on early stage investing at the end of the first quarter of 2011 stood at 1.4 percent. However, during poor economic cycles, angel investors may go dormant and hold off on investing until the economy improves.
Most angels recognize that unproven business ideas and technologies may take a while to become profitable. Therefore angels are often prepared to wait several years while the business matures before they see returns. However, they will want to stay closely involved with the management of the company so that they can be reassured that profitability is on the way.
Amateur angels are often friends and family members of the entrepreneur who want to see him succeed. Return is not so important to these angels as the overall success of the enterprise. Professional angels tend to be former entrepreneurs or business people who've made money, and who are interested in new ideas and helping emerging businesses. They invest as a way of putting these ideals into practice.
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