Doron F. Eghbali Business Planning Law Blog on Lawyers.com

Who Is An Angel Investor?

Monday, April 19, 2010 by Doron F. Eghbali

Business entrepreneurs seeking to sustain, expand, or launch their start-up in this relatively frozen credit market might have heard of angels or angel investors. As such, it behooves us to understand who these investors are and what they invest in.

ANGEL INVESTORS' SOME TYPICAL CHARACTERISTICS

Angel investors are affluent individuals investing in a business at its early stage in exchange for hefty returns when the business is sold or goes public. Such investment is, often, made in the form of preferred stocks or convertible debt in a company.

ANGEL INVESTORS' INVESTMENT PREFERENCES

Since Angel Investors look for high returns and invest in highly risky businesses, they need to ensure the business will sufficiently compensate them. Hence, they look for the following characteristics:

Have Clear Path Toward Profitability: Business must have a clear path toward profitability
Have Potential for Growth: Businesses must demonstrate their potential for growth through plans to expand or enter new markets. As such, Angel Investors are most likely to invest in business areas such as technology and life sciences as opposed to investing in local mom and pop businesses namely retail shops, delis or local restaurants with limited earning potential.

CAVEATS

Relative Loss of Business Independence VS Potential Long-Term Growth

Not every business with clear path toward profitability and potential for growth should approach Angel Investors. The reason is Angel Investors might take away from you business independence and demand to have a say in your business decisions. Therefore, before mulling this kind of investment, intelligently ascertain if you are willing to sacrifice your business independence for potential long-term growth. For more information on courting Angel Investors, read my previous posting on Courting Angel Investors: Do's and Dont's.

__________________ 5;______

DORON EGHBALI is a Partner at the Beverly Hills Offices of Law Advocate Group, LLP. He Primarily Practices Business, Real Estate and Entertainment Law. He Can Be Reached at: 310-651-3065. For More Information, Please, Visit: HERE.

Posted at 09:55 AM

Topic: Business Planning