Angel investing.
In plain English
Angel investing is a person writing a personal check into a young company, often at the point where the business is a prototype and a plan rather than a product with customers. Deals are typically small, informal by fund standards, and structured as common stock, preferred stock, or a convertible instrument that turns into shares at a later priced round. Most angel-backed companies fail outright, so the arithmetic of the category depends on rare large outcomes covering many total losses. Money invested is usually locked up for many years with no market to sell into. Federal rules generally limit participation to investors who meet accredited investor standards.
01Why it matters
The realistic base case for any single angel check is losing all of it, so the size of each check matters more than the quality of the pitch.
02The math, step by step
Say an angel makes ten $25,000 investments, spending $250,000. Seven fail completely, two return the original $25,000 each, and one returns 30 times, or $750,000. Total back is $50,000 plus $750,000, which is $800,000 on $250,000, driven entirely by one outcome.
Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.
03What this is NOT
A venture capitalist invests other people's money through a fund, with a team, a mandate, and formal governance. An angel invests personal money and answers to nobody. Angels usually come earlier and write much smaller checks.
04Receipts
Every figure on this page is sourced to a primary document. Tap to open the original.
Plain-English answers from our glossary. Receipts included. Never advice.
Educational tool. Answers come only from ClearMoneySchool's published glossary and are not advice. Why we never give advice