Today’s risk-averse / Lean Startup / focus-on-customer economy has really done a number on startups…
Moreover, the move of startup investment from the U.S. coasts, regions sophisticated in tech and finance, to middle America every-wealth, means that everyone fashions themselves and “Angel” or “VC” because they “invest in ‘startups’” (and yes, I mean to use all those quotes 😉 )
Angels are by definition of being an angel, the most risk tolerant investor.
They support their experience and passion. Or at least, that’s from where the term stems. The idea of angel investor hearkens back to the patrons of the arts: people who fund what they know and love. Venture Capitalists support new ventures from a more economic point of view: yes, investing in what they know but certainly with a healthy dose of ROI as VCs have stakeholders – investors – to whom they have to deliver said returns.
That’s not to say Angels don’t seek ROI but rather that you have to appreciate THEIR means, experience, and nature as they’re beholden to themselves.
Those distinctions matter.
Angel investors invest in ideas.
That’s the very notion of the name.
Granted, many don’t. The world is a big place and with so many people involved, wanting to be involved, and hoping to be involved, people will say any number of things according to their perspective, experience, outlook, ignorance, or beliefs.
Many will say Angel investors don’t invest in ideas. That Angel investors need traction, customers, or revenue… evidenced by all the “Angel Investors” who say that. But words and titles have meaning on purpose.
Angel investors in name are the people who take the greatest investment risk to support things they know and love. They invest in ideas. That’s what makes them angelic. Remove the Angel and they’re a business investor. What makes a business investor? Someone who invests in businesses, no? So what makes one an Angel? They can’t mean the same thing, we wouldn’t have the different words for such things if they all meant the same.
Let’s play it out further.
When a startup has customers, it’s a business. Technically, legally, etc. even if the business is still likely to fail, or still considered startup, it’s doing business and therefore it is a business.
Investors who will invest only where those circumstances (customers and revenue), are investing in a business and accounting for those customers.
There’s nothing wrong with that! None of this is criticism, it’s clarification.
So what do we call the people who don’t require those circumstances? How do we distinguish the people who will invest where there aren’t customers nor revenues? Who are the people who invest at the stage where a venture is NOT yet a business?
We call those Angel Investors. And a venture with no customers, establishing that it’s a business, is really still just an idea.