Angel investor

What an angel investor is

An angel investor is an individual who invests their own money into an early-stage startup, usually in exchange for equity.

Angel investors are solo, whereas a VC fund invests money it has raised from other people and has a mandate to follow. An angel is spending their own money, so the decision to deploy or not lands with them.

Most angels have built or run companies before, and many still go alongside being an angel. On top of the money, they often bring specialised sector knowledge, introductions and time, though how much of that you get varies a lot from one angel to the next.

In the UK, angels generally need to self-certify as a high net worth or sophisticated investor before they can be shown certain early-stage opportunities. That is a regulatory requirement, not a description of the person.

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How angels differ from VC funds

• Angels invest their own money. VC funds invest money raised from other investors.
• Angels usually invest earlier, often at pre-seed or seed.
• Angel cheques are usually smaller than fund cheques.
• An angel can decide alone. A fund normally needs a deal committee to sign off.
• Due diligence with an angel is generally lighter than with a fund, but it still happens.

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The three ways angels invest

• Alone. One individual, their own decision, their own money.
• Through an angel network. A group shares deal flow, but each member decides and invests separately.
• Through an angel syndicate (or investment syndicate). A lead negotiates the terms and other members follow into the same deal.

Same type of investor, three quite different processes to get through.

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Angels and UK tax relief

Most UK angels investing at this stage will ask whether you qualify for SEIS or EIS, because the relief changes the maths on the investment.

• SEIS: 50% income tax relief on up to £200,000 invested in a tax year.
• EIS: 30% income tax relief on up to £1 million in a tax year, or up to £2 million if at least £1 million goes into knowledge-intensive companies.
• Both require the shares to be held for at least three years for the relief to stand.

Advance assurance is the confirmation from HMRC that your company is likely to qualify. Angels often ask to see it before committing.