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What is angel financing?

| Feb 23, 2021 | Business Formation & Planning |

Angel financing is an option for gaining funding as a small business. You give equity in your business to the angel investors in exchange for funding. From the angel investor’s perspective, it is a high-risk, high-reward opportunity. Angel investors in California are often involved in their communities and enjoy helping local businesses. Many of them will give advice on helping your business succeed if they choose to invest.

Angel financing has regulations

There are regulations in California and at a federal level to help protect people during angel financing. When you receive business funding from people who don’t already have a relationship with you, the law requires that these people be accredited investors. Singles must earn $200,000 a year or have a net worth of $1 million, and couples must have a combined income of $300,000 a year.

It is the first source of external funding

Angel financing is your first source of external funding to start or scale your business. You don’t have to go this route to start or scale your business if you decide it’s not right for you. There are other ways of securing capital, so it’s wise to understand the pros and cons of the different types of funding before making a decision.

Consulting with a business formation and planning lawyer may help you learn about your options and protect yourself and your business. There are aspects of the law you may not come across if you don’t seek the help of a business lawyer.

Expect business advice

Angel investors may give you business advice to help you avoid making mistakes. They will expect to have some say since they are investing money in your business. An angel investor can also help you with connections as they often know other investors and business people. You should know that if you were to sell your business later, the angel investors would receive part of the money due to owning a part of your company.

Angel financing is a great way for startups and small businesses to secure funding that they don’t have to pay back in the traditional way. If you are new to business, an extra benefit of angel financing is that your angel investors are willing to mentor you and introduce you to key connections.