An Angel investor is an individual who provides capital for a business startup, usually in exchange for ownership equity. Unlike venture capitalists, angels typically do not manage the pooled money of others in a professionally-managed fund. However, angel investors often organize themselves into angel networks or angel groups to share research and pool their own investment capital.
Angel capital fills the gap in startup financing between the "three F"s (friends, family and fools) and venture capital. While it is usually difficult to raise more than $100,000 - $200,000 from friends and family, most venture capital funds will not consider investments under $1 - 2 million.
Venture capitalist Brad Feld defines an angel investor as someone who makes at least one equity investment in a seed or early stage company each year of at least $25,000. Feld also describes an investor he calls a Super Angel, an angel investor who has been investing for at least three years and has made at least two equity investments of at least $50,000 each in each of the three years.
Investments by angel investors bear extremely high risk, and thus require a very high return on investment. Angel investors typically seek a return of at least 10-20 times their original investment within 5 years, through a defined exit strategy, such as plans for an initial public offering or an acquisition. Angel financing can thus be an expensive source of funds. However, cheaper sources of capital, such as bank financing, are usually not available for most early-stage ventures.