Any external funding you get has both risks and benefits. The same is true for angel investors for startups. Let us take a look at some of the pros and cons of having angel investors.

Pros And Cons

Pro: Angel investors take risks

Getting a loan for your small business is not going to be easy. There are many prerequisites and formalities required for getting a loan, which is not there if you choose an angel investor. Angel investors are always successful entrepreneurs themselves, with a thorough understanding of the risks of business. They are more open to business risks and eager to explore the outcome.

If you do manage to get a bank loan, there are going to be many restrictions that banks might place. This includes a restricted loan amount permitted so that the bank can curb its losses. Meanwhile, angel investors are eager to explore an organisation’s potential, regardless of the risks.

Con: Angel investors raise the bar

While angel investors for startups do take risks, they also have much higher expectations from entrepreneurs. Angel investors are invested in ideas, but they are also looking to make a profit in the future. They invest a significant amount of funds, so keep in mind that they are looking for a payout.

Also Read: High-tech startups and the venture capital (VC) investment model

Pro: The money they give is not a loan

If you get a loan for your small business, the bank will keep sending you reminders to repay what you’ve borrowed, regardless of whether your business succeeds or fails. Not so with an angel investor. An angel investor for startups gives a new business money in exchange for a part of the company’s ownership. If you succeed, you both get the profits. If not, you don’t need to pay back any of the money you borrowed.

Con: There are set conditions to the money

There is no legal obligation to pay an angel investor back. However, when you hand over a share of your business equity, you immediately give them a part of your net earnings from the future. The percentage of control and ownership you give up often depends on how much money they are investing in your business. If your business can succeed with a large sum of money, you might not get complete access to all that you earn.

Pro: Increased chances of success

An angel investor comes with years of entrepreneurial experience and understands how to work around obstacles and achieve success. Researchers at HBS have found that businesses supported by angel investors have higher odds for success, see a significant growth rate and give greater returns. Additionally, an angel investor for startups has a bounty of knowledge and contacts to mentor you the right way.

Con: You don’t entirely control everything

While we saw before that angel investors are open to risks, it’s true that they won’t empty their pockets without knowing how and where their money is going to be used. A common misconception about angel investors is that they give you the funds and then wait for you to work with them. The truth is they’re going to actively want to be a part of all decision-making processes. Even the ones who let you retain control will hold you accountable to explain the reasons behind some of your decisions. Before you partner with an angel investor, make sure you are comfortable allowing someone else to dictate terms to you who is not a founding member of your venture.

Getting your business off the ground is difficult, right from the initial idea to the day you start pitching to investors. Finding the right investors is also a tedious process. It requires sacrifice, networking and a lot of hard work.