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An angel investor is typically a high-net-worth individual who provides financial backing for early-stage, often high-risk startups, using their own personal funds. Unlike institutional venture capital firms, angel investors invest much earlier in a business's life cycle, usually during the seed stage or Series A round.
The investment is usually made in exchange for ownership equity in the company or convertible debt. Convertible debt is a loan that can convert into equity once the company reaches a certain milestone, such as a subsequent funding round or an event such as a sale of the company.
Angel investors are crucial to the startup ecosystem as they provide capital, mentorship, and sometimes access to their network to help startups at a critical juncture where the companies might be too early stage to attract traditional venture capital. The potential upside for an angel investor is significant if the startup succeeds, but the risk of failure is also high as a large percentage of startups do not succeed.
Angel investors often specialize in industries where they have personal experience or expertise, which can enable them to contribute more than just money to the startups they support. For example, they might mentor the founder or provide strategic advice, thus adding value beyond the financial investment.
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