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Simple English definitions for legal terms
angel investor
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A quick definition of angel investor:
An angel investor is someone who gives money to a new company to help it grow. They usually give a lot of money and in return, they get a part of the company. This is different from a bank loan because the angel investor is taking a risk and might not get their money back. Angel investors are usually rich people who want to help new businesses. They are also called private investors, seed investors, business angels, or informal investors. To be an angel investor, you need to have a lot of money or make a lot of money every year. The government has rules about who can be an angel investor and who can't. Sometimes, new companies can ask lots of people for money, but they have to be careful how they do it. They can only ask people who have a lot of money and they have to check that those people really have a lot of money.
A more thorough explanation:
An angel investor is a wealthy individual who invests their own money in emerging companies in exchange for ownership equity or convertible debt. They typically provide funding between the initial seed funding stage and venture capital financing. Angel investors are also known as private investors, seed investors, business angels, or informal investors.
Angel investors are often crucial for entrepreneurs who struggle to secure cheaper sources of financing such as bank loans. They invest their own funds, unlike venture capitalists who invest others' pooled funds. Angel investors are usually considered accredited investors, meaning they meet certain financial criteria set by federal law.
For example, an angel investor might provide $100,000 to a startup company in exchange for a 10% ownership stake. This investment helps the company grow and develop, and the angel investor hopes to make a profit when the company becomes successful.
Historically, angel investors have made their investments in unregistered, private offerings under either Section 4(a)(2) of the Securities Act or under Rule 506(b) of Regulation D. However, the SEC's new 506(c) exemption permits entrepreneurial ventures to engage in general solicitation to offer securities as long as the securities are sold only to accredited investors and the issuer takes "reasonable steps to verify" the purchaser's accredited status.