Pros and cons of angel funding

Angel investors provide start-ups with capital in exchange for equity or convertible debt in the business. So what’s the catch?

By Craig Falck for Africa Report.
Photograph: © Flynt | Dreamstime.com

Honesty versus Dishonesty:
Pro: You can raise the capital that you need to start your business from a number of sources.
Con: Not all sources will be honest and reliable, have good intentions at heart, or even use “clean” funding.

Flexibility versus Accountability:
Pro: Lending arrangements are flexible, where you can negotiate the terms of repayment of the money invested in your business.
Con: If you’re stuck with an unscrupulous investor, you could find yourself being bullied into giving them far more of your business than their investment is worth.

Transparency versus Secrecy:
Pro: It’s easier to find angel investors than it is to get bank loans, meaning you shouldn’t have too many issues getting your business off the ground.
Con: Angel investors are often in the industry because they like their secrecy – sometimes this secrecy serves to hide something that they don’t want other people to know about. As soon as you find yourself in bed with one of these double agents, you may find yourself with a target on your back.

Advice versus Bullying:
Pro: You have someone that you can bump ideas off – and they’re often willing to help because it’s their money being used by the business.
Con: Angel investors can apply pressure to go in a certain direction for their benefit, whether you want to or not. You might find that you have to do business with companies that you don’t want to, or have your funding pulled if you back out.

Availability versus Scarcity:
Pro: Angel investors know others like them and could assist in sourcing more funds at a later stage.
Con: Finding the perfect angel investor can be tricky, and you might waste your time on a lot of searching.

Angel funding could be your business’s manna from heaven. It could also apply unnecessary pressure and accountability to your business when all you want is to bring in customers. Do your research and weigh up the pros and cons before taking on an angel investor. A little prudence goes a long way in preparing for any eventuality.