What is an Angel Round?

An angel round is an early-stage funding round in which startups raise money from individual investors, called angel investors. In exchange for funding, investors may receive equity or invest through instruments such as SAFEs or convertible notes. Angel funding is commonly used to support product development, hiring, market expansion, and other early business needs. 

An angel round may be anywhere from tens of thousands of dollars up to millions of dollars based on certain considerations like the state of the business, traction, valuation, fundraising needs, and investor interest, among other factors. The size of an angel round is not static. 

An Example for Angel Round

Consider the scenario where a startup company requires $500,000 in order to build its product, employ people, and enter a new market. In this case, an angel investment can be made by obtaining $500,000 from an angel investor(s) in exchange for equity or using a SAFE or convertible note.

Who is an Angel Investor?

An angel investor is a person who uses his/her personal funds to invest in a start-up company that is in its initial phase. Angel investors are people who have entrepreneurial experience and know how the business works. Angel investors can be entrepreneurs, executives, experts from the field, and even businessmen.

The personal capital of angel investors is invested either individually or sometimes in syndicate form. Venture capital firms, on the other hand, invest outside money through investment funds.

How to Raise an Angel Round

• Finding the right angels: Look for investors whose industry expertise, network, investment interests, and experience align with the startup’s business and growth plans. 
• Developing a pitch: Developing the pitch with the business idea and vision of the product and market is essential because at an angel round, the angels invest based on early conviction.
• Making connections: Most angel investment rounds are made through recommendations and founder networks or angel groups/syndicates and not through cold pitches.
• Working out terms: The investment is made either as priced equity or convertible securities like the SAFE or the convertible note, which determines the cap table of the company before future rounds.

Angel Round VS. Seed Round

While an angel round is defined as money invested in a company through angel investors, the seed round implies that the company is at the early stage of fundraising. The angel round can be a part of a seed-stage investment; however, the two notions are different.

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