An angel investor is an individual or group that provides capital for a start-up or entrepreneur’s business idea, usually in exchange for ownership equity in the business. They are referred to as angels since traditional financing sources regard the business as too insecure for a loan or investment. The term originates from theatres in Broadway that would often rely on wealthy individuals to bankroll theatrical productions that would otherwise have to shut down. The meaning continues in the modern context since angel investors will make a high risk investment in a company because they believe in the concept or idea that drives it.

Angel investors usually provide funding at the very early stages of a start-up where the risk of failure is high and most traditional investors are not willing to back them. While in the past angel investors have tended to be high net worth individuals, today there are equity crowdfunding sites that create groups of people who contribute funds to perform the same role.

Angel investors are often involved in the startup to a larger extent than simply providing financing and are often retired entrepreneurs or executives that are interested in investing for reasons that go beyond making a profit. These can include individuals that want to keep abreast of current developments in a particular technology area, that wish to mentor the next generation of entrepreneurs and those that want to make use of their experience and networks on a less formal basis than taking a direct role in the business.

Since the most radical innovations tend to be produced by outsiders, angel investors tend to focus on their belief in the founders of startups and their business ideas rather than following the general market and often provide advice and feedback as well as financing.

There is no public exchange listing angel investors and they are often found on an ad-hoc basis. The most common source of these investors is family and friends that are often predisposed to helping an entrepreneur. Wealthy individuals who have made their money in the field that the startup is operating in are another good source of angel investors. These types of investors are increasingly operating as parts of syndicates that assess ideas on a regular basis and fund those that they think will succeed. Such syndicates have a higher potential for investing in ideas pitched to them and often provide professional management in assessing and funding ideas.