In recent years, the world of cryptocurrencies has experienced tremendous growth in popularity and awareness. More…
Angel investors sound similar to guardian angels. Angel inventors are people who play a big role in the initial phases of a cryptocurrency project.
In our previous blog posts, we discussed initial offerings, launchpads, and airdrops. These are all essential to new crypto projects. This time, we will learn about the actual people behind a project aside from the developers.
Angel Investors Definition
Angel investors also go by the names seed investors or private investors. They are people who possess a high net worth and can use their own capital to give funding to start-up crypto companies.
They usually provided the needed funding during the initial coin offering (ICO) stage. However, it does not work out like the usual loans. The angel investors will own a certain percentage of the start-up company that is proportionate to the preliminary amount that they invest.
Seed investors can continue financing the company as it progresses, but others prefer to give on a one-time basis. They contribute to crypto start-ups as a way of expanding their own wealth.
Nevertheless, new crypto projects are still at risk of failure. Hence, funding the crypto start-ups doesn’t exceed 10% of a seed investor’s portfolio.
Origin of the Term Angel Investor
The Broadway Theatre first used “angel” to refer to their wealthy supporters who donated money for the theatrical shows that they produce.
In the case of angel investors, William Wetzel, founder of the University of New Hampshire’s Center for Venture Research, used this term for the first time in his completed study about how entrepreneurs accumulate capital.
Who are Qualified to be Angel Investors?
Individuals with “accredited investor status” usually become qualified as angel investors but it is not a strict requirement. The Securities and Exchange Commission (SEC) describes an accredited investor as someone who owns assets that amount to a net worth of $1M or more and was able to $200k income for the past two years. For married couples, they need to have joint earnings of $300k.
Nonetheless, not all accredited investors are outright angel investors. Crypto start-ups accommodate private investors because they are less predatory than traditional loan institutions.
Common Sources for Angel or Private Investors
Angel investors are not limited to wealthy people. They can be found in different groups and forms. Here are four sources where one can find angel investors:
We have heard of crowdfunding endless times when talking about crypto projects. This usually happens in the early stage. Crowdfunding is composed of people who form an online investing group. The population of these online investing groups are quite large and they can invest for as low as $100.
Family and friends
The most typical source for angel investors are the developer’s own family and friends. However, the risk lies in the impact of the start-up’s possible failure on the relationships with their family members and friends.
Individuals with high net worth like those who work as lawyers and doctors can also become seed investors. Because they have a high net worth, they can afford to invest up to $500,00 in exchange for equity. Word of mouth plays a part in marketing the crypto start-ups through associations and business clusters.
A group of angel investors is known as angel syndicate. Joining an angel syndicate raises their potential levels of investment. In this group, investors turn over their funds to the syndicate. Correspondingly, the syndicate’s management team selects which crypto projects are worth investing in.
Benefits of Angel Investors
First, the presence of angel investors grants the project developers the capital they need to formally start their project and ensure its continuity. Aside from the monetary aspect, private investors give invaluable insights to the team on how they can work better together and achieve their success.
Second, in business such as fintech, connections matter. Having angel investors lays the foundation for further networking opportunities. This can be a good milestone in forming strong business relationships with other mentors and experts.
Lastly, the team’s project will be more visible to other potential investors. Their visibility will also increase the resources that they can use to market their crypto project even more.
Risks of Angel Investors
While angel investors can give advice and guidance, their role is more on the passive side. The brunt of daily operations still falls on the developers’ shoulders.
Moreover, seed investors give huge amounts of funding to start-ups. This means that they have a big stake in the project. By the same token, other token holders lose a part of their equity. Also, startups should be careful about falling victims to potential fake investors who are in reality conducting crypto scams.
Angel investors make a whole lot of difference to the way that crypto start-ups operate. Providing them with venture capital is a big morale booster. It inspires the developers to work better and ensure their success.
There a lot of naysayers about cryptocurrency. Having people who believe in your vision is certainly inspiring. Even though having angel investors comes with risks, it works for a lot of crypto start-ups. We can use various crypto coins and tokens now because there are angel investors who dared to take a risk and believe in the goals of crypto developers.