Definition of angel investor

A wealthy individual who invests in a start-up company with his or her own money. [1]

Also known as business angel, the individual provides equity or quasi equity funding to growth oriented private companies with the aim of achieving a financial return through capital gain at exit.  As well as money, they also provide value-added services.

Example
The late Anita Roddick started her own business, the Body Shop, creating and selling beauty products. Roddick was keen to open a second shop in Chichester (UK) in 1976, but the bank turned down her request for a loan.

The late Ian McGlinn, multi-millionaire, offered Roddick £4,000 in return for 50% equity in the business. Anita accepted the offer. With his equity investment, McGlinn became a business angel and sat on the board of the Body Shop, resigning just before it was floated on the stock market in 1984. At the time of the flotation McGlinn was worth £4 million.

By 1991, McGlinn’s 52 million shares were worth £150m. In 1996, McGlinn sold 3.5% of the business for £12m. When L’Oreal took over the Body Shop in 2006, McGlinn’s 22% stake was worth £137m. In 2007, Ian McGlinn was ranked number 28 in The Sunday Times Rich List, with an estimated worth of £146m.

Innocent Smoothies, now Europe’s leading smoothie maker, was set up in 1999 by three men who worked in advertising and consulting. An American business angel, Maurice Pinto, invested £200.000 in the start-up. In 2009, Coca Cola bought an 18 per cent stake in the company and increased its stake to 58% in 2010. [2]

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