The role of angel investors in building startups


Those who aim to build up a venture traditionally rely on elaborate planning: researching, writing a business plan, pitching it to investors, assembling a team, introducing a product/service, and ultimately selling that product/service. At some point, they thus need to turn to investors to secure funding for their business. Funding a startup is enormously important as it is the fuel that powers it. Increasing your visibility, it can also attract the attention of the market. Together, it can add value to your startup business signalling the message that you are worth considering. Angel investors, at this stage, can meet your needs. But who is an angel investor? In this blog, we try to let you know more about them and offer a brief overview of the role they can play in building a startup business.

Also known as a seed investor, private investor or angel funder, an angel investor is, according to Investopedia, “a high-net-worth individual who provides financial backing for small startups or entrepreneurs, typically in exchange for ownership equity in the company”. It is to be recalled that angel investments, as one of the primary resources, can occur once or may help through the initial process of your business. Accordingly, angel investors play a crucial role in the process of a business buildup. They are mostly established entrepreneurs who run their own business ventures and have accumulated enormous wealth from them. In addition to funding their startups, angel investors can help startup owners with deciding on business strategies and recruiting staff. Above all, they can help them create and expand their business networks as they are in touch with traders and potential customers. Potential entrepreneurs can largely rely on their knowledge to grow their business ventures.

The Pros

Angel investors’ list of criteria, unlike financial institutions and other traditional money lenders, is short. They don’t expect you to provide a business model or make a profitable return. Like angels, they are ready to run risks and fund your business with no limit as long as there is a good idea behind your business and you intend to work hard.  Although they mostly come from the field of Technology, there are also investors who belong to fields such as health care and consumer goods. Regardless of your field of business, you can thus rest assured that it will be eligible for receiving funds from angel investors. Also, as angel investors tend to get paid at the events of liquidity, you don’t need to be worried about making periodic repayment as is the case with traditional financial institutions.

The Cons

As they provide unlimited funds, angel investors expect you more. Due to the risk they take in investing a venture, they expect great profits. The downside of being angel invested is that these higher expectations can put entrepreneurs under pressure as they have to perform well in their business so they can generate greater profits. As well, angel investment is time intensive and slow. Both the angel investment and finding the angel investor demand a great deal of time. After you have found an angel investor, the investment process can take up to one year.

Note: We are here at Bay&Co to help you start or bring your business to Canada. Either it is a startup or mature business, we can help you with your transition and growth in Canada throughout the entire process. If you need assistance, please do not hesitate to contact us.