An angel investor or angel (also known as a business angel or informal investor) is an affluent individual who provides capital for a business start-up, usually in exchange for convertible debt or ownership equity. New start-up companies often turn to the private equity market for seed money because the formal equity market is reluctant to fund risky undertakings. In addition to their willingness to invest in a start-up, angel investors may bring other assets to the partnership. They are often a source of encouragement; they may be mentors in how best to guide a new business through the start-up phase and they are often willing to do this while staying out of the day-to-day management of the business.
Term sheet is a non-binding agreement setting forth the basic terms and conditions under which an investment will be made.
Alaska Angel Fund Promissory Note Term Sheet
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An angel investor typically gets paid through a return on their investment, either when the company they invested in goes public or is acquired. This return can be structured in the form of a one-time payout, or through a series of payments over time.
Angel investment deals are typically structured as either debt financing or equity financing. In debt financing, the angel loans the startup the capital and receives interest payments on the loan. In equity financing, the angel provides the capital in exchange for shares of the company.
An angel investment deal typically has three components: an equity investment, a convertible note, and a warrant. The equity investment is a simple purchase of shares in the company. The convertible note is a loan that converts to equity at a later date, typically when the company raises additional capital.
In exchange for their investment, your angel investor receives a stake in your startup. Many business owners give angel investors between 10 and 50 percent of the equity in their business, which has ramifications for your company's decision-making. Angel investors become part of your business.
An angel investment agreement is a contract between an angel investor and a startup company in which the angel investor provides capital in exchange for equity in the company. The agreement typically outlines the rights and responsibilities of both parties, as well as the terms of the investment.
What Is an Angel Investor? Angel investors are wealthy private investors focused on financing small business ventures in exchange for equity. Unlike a venture capital firm that uses an investment fund, angels use their own net worth.
Angel investment structures vary, but angels generally invest in one of three types of securities: Common shares. Convertible preferred shares. Convertible debt.
Common Angel Investment Terms Seed Capital (Stage) Just like it sounds, seed capital is the initial capital that funds a business. ... Valuation. The startup valuation of your company represents how much someone other than you thinks it's worth. ... Term Sheet. ... Convertible Note. ... Dilution. ... Cap Table. ... Common & Preferred Stock. ... Vesting.