Angel Investors

This leads to our discussion of some downsides when choosing to work with an angel investor that are important to consider when choosing the financing that best aligns with the interests of the startup company.

The primary consideration is that the typical amount of funding is small. The standard investment is around $600,000. Because of this, companies will usually pursue angel investors only at the very early stages of the company. A more well-developed startup may require multiple angel investors to be able to get enough capital for their project. This may become challenging because angel investors often want board representation. If angel investors have voting rights, the startup may be dependent on their agreement for making critical decisions. Having multiple angel investors requires the startup to manage the expectations of all these individuals, and balancing various interests and priorities may become difficult .

Another potential challenge is that angel investors will not typically invest in multiple rounds of funding for the same company. As previously discussed, they may provide bridge loans as interim funding but will expect the company to pursue additional routes of financing, such as venture capital.