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Key takeaways

• Angel investors provide initial seed funding or growth capital to startup businesses, usually in return for a minority stake in the company

• They often take a punt on startups that would struggle to get a business loan under normal circumstances

• Angel investors are the largest providers of funding in startups and young, growing businesses in the UK

• While some angel investors are happy to be silent partners, others want a hands-on role in running the business 

What is an angel investor?

Also known as business angels, these individuals offer an alternative to business loans or self-funding.Ìý

They are typically affluent business people looking to earn better returns than those available from savings accounts and other traditional investments.

While some angel investors invest alone, many join together as syndicates. This enables them to pool their resources and support startups they believe in.Ìý

The stake angel investors want in a business depends on how much they invest but is generally between 10% and 25%. The investment offered in return can be anything from £5,000 to £500,000, or even more in some cases. They typically aim for a 10-fold return within approximately six years – hoping, for example, to turn a £100,000 investment into £1 million.

Read more: Alternative ways to fund your business

How does angel investing work?

Angel investment can offer a one-off cash injection or an ongoing funding arrangement. Either way, it’s usually in exchange for ownership of an equity share in the company.

As the recipient, you don’t have to repay the money invested. But you do have to share any profits made according to the percentage of the business you agree to sell.

This means you only start paying off the angel investor if your business idea succeeds.Ìý

However, it also means giving up some control of your business idea – especially if your angel investors want day-to-day involvement in the company's management.

There are ways to manage your business's relationship with an angel investor, but much depends on the type you choose. While some angel investors are happy to be a silent partner, others prefer to take a hands-on role in running your small business.

As business angels usually plan to get their money back within five to eight years, taking on angel investment may also mean selling your company – or listing it on the stock exchange – when you reach that stage.

What are the pros and cons of angel investment?

Angel investment can be a great way to take your business dreams to the next level. But it can also be an expensive way to finance a business in the longer term – especially if your company flourishes.Ìý

If your angel investors insist on getting involved in running the company, it can also prove a lot more frustrating than simply taking out a start-up loan.Ìý

Is angel investment the right business funding source for your company? Here are some of the main pros and cons:

Advantages of angel investment

• The money you receive is an investment rather than a loan – so you don’t have to pay it back in instalments

• An angel investor may agree to invest in a high-risk business that would struggle to get a loan, providing they see growth potential

• Angel investment terms are often more favourable than you could get from a bank or other lender because there’s no interest to pay 

• Convincing an angel investor to invest in your business means it has a reasonable chance of success – business angels only invest in promising ventures

• Your angel investor can use their expertise, experience and network to grow your business. They may also provide additional funding at a later stage if necessary

Disadvantages of angel investment

• You must give up a stake in your business, meaning you have to share future profits and possibly all decision-making with your angel investors

• Angel investors want to make a return on their investment, so they may push small businesses to grow faster than they might otherwise choose

• Most angel investors want an exit plan after a certain number of years, which may involve selling the company (unless you go public or can afford to buy them out)

• The eligibility and verification process can be long and complicated – you can expect it to take at least two months and sometimes a lot more

How can I find angel investors for my startup?

Finding angel investor funding for startups is not always easy.Ìý

So, unless you have friends or family members who can become angel investors in your company, it’s best to target investors with a track record of supporting similar businesses to yours.Ìý

You need to connect with potential angel investors, and that’s easier if you’re working in the same field.

Here are some tips for attracting a business angel’s interest:

• Attend professional events for the sectors or industries in which you want to launch a business

• Enter pitch competitions organised by angel investment organisations such as the

• Search for suitable investors in online angel investor directories and lists

• Get in touch with local businesses that already work with angel investors in your area/sector

Is an angel investor right for my business?

Angel investors look for startups they believe can expand quickly, allowing them to make a return on their investment in under ten years. This means they prefer startups and young companies with a low turnover and plenty of growth potential. As a result, business angels tend to invest in:

• Startups or profitable early-stage businesses

• Companies with a turnover below £5 million

• Firms seeking finance of between £15,000 and £500,000

• Businesses with a clear growth strategy

• Companies who want money to fund a particular strategy, such as new product development

• Organisations who are willing to sell a share in the business

• Business people who are prepared to take advice and guidance from their angel investors

What are the main alternatives to angel investors?

Angel investment is not suitable for all startups, but plenty of other types of funding are available. The right choice for you depends on your sector and the conditions you’re willing to accept.

You must repay some types of funding in full. Others involve paying a return on the investment, just as you would an angel investor.

For startups, the alternatives to seeking an angel investor include:

• Equity/debt finance

• Startup loans

• Venture capitalists

• Government grants

• Crowdfunding (including equity crowdfunding)

• Asset finance

• Peer-to-peer lending

You can learn more about how these different types of business finance compare by reading our handy guides on how to get funding for a business and six easy ways to get business finance.