Angel investors are individuals (sometimes a small group) who are willing to contribute their personal capital in order to fund a startup business. Unfortunately, it's not always easy to find angel investors!

Startup and small business owners looking for angel investors to fund a business often have many misconceptions of what business angel investors really are.  Angels come in all forms, from your rich uncle Ted to high net worth professional investors.  Generally they are people who have a bit of their own capital to invest into small businesses to help them grow.

Let's start by discussing a few of the variants of investors and how they relate to you.  We’ll also take a look at the pros and cons of using different types of Angels.

Friends, family and fools

Most startup companies are financed by the people around them, their friends and family members. It's the uncle who has some extra cash in his retirement account or a good friend who trusts your judgment enough to support you. The reason this category is so popular is because investing is based on the trust and belief others have in you and your idea.

The fools category is reserved as a catch-all for everyone who put money into your company or idea and lost it!  Unfortunately you don’t know who these people are until it’s too late (and they’re not real excited about that fact either, we can assure you!)

If you are just beginning your quest for finding startup capital, this is usually the first stop.  In the event that you can’t find business capital from those close to you, your next step would be to reach out in the world of professional investors.

The Pros and Cons
	Pros – They already trust you and are more likely to invest in you, not just your idea. Cons – If things go south, it will really suck to tell your uncle Ted you lost all of his money.  Other investors may hate you, but you still have to see Ted every Thanksgiving!

High Net Worth Investors

Since most startup companies are looking for a relatively small amount of money - usually less than $250,000 - a good source of angel funding is often "High Net Worth Investors". This is the guy with a great deal of disposable (read: invest-able) income that is looking for a big payout over a relatively short period of time (3 - 5 years perhaps).

While these investors may actually have a high net worth, the difference between what we would consider a "professional angel" and just a guy with a ton of cash in the bank is their involvement in the deal. A High Net Worth Investor may not be planning on getting directly involved in your business on a day-to-day level. They want their cash to grow without having to put much time and effort in to the deal - like a stock portfolio.

The Pros and Cons
	Pros – These investors will simply invest in ideas and people they like, with less time spent on due diligence or trying to wring more equity out of the deal. Cons – Unlike your family or friends they will be a whole lot less forgiving if you blow through a big chunk of their retirement account.  They are not on your side of the table.

Business Angel Investors

We would consider High Net Worth Investors who make many angel investments and manage them professionally to be true Angels. Business Angels are typically harder to land for your startup than the other two categories because they are more actively seeking out investments and are looking at many business plans at once.

Business Angels tend to invest “for a living” – not just as a side project.

However, they are also a lot more valuable to you as a startup. Typically a business angel will help provide guidance in the conception and growth of the company which can add a lot of value. Also, these investors often know other investors, from other business angels to larger venture capitalists.

Business Angel Investors tend to become associated with angel investment groups who are actively soliciting and sorting through deals that they want to invest in.  They tend to be far more specific about what their investment criteria will be and will often do a fair amount of due diligence before making an investment.

The Pros and Cons

Pros – Professional Angels will often get in the driver’s seat with you and actually help you grow the company.  It’s like getting a free management team member.  Also, they tend to be well-connected to larger sources of capital that you may need later. Cons – They are a lot more selective about the deals they do, because they can only manage so many deals at once.  It’s a lot harder to land a Professional Angel.

Summary

Whether you find your angel investment from your rich uncle Ted or a prominent Angel Investor Group, it’s important to know that the universe of Angel Investors looks like and what you’re really shopping for.  If all you need is a little bit of cash and you’ll be on your way, then perhaps looking to your friends and family is the way to go.  However, if you think what you really need is a partner to grow this idea to the moon, it may be worth while to pursue a Professional Angel Investor as not only