Archangel

What Is an Archangel?

The term archangel refers to a successful angel investor who invests in a number of startup ventures that have achieved fame and fortune as commercial successes. Angel investors are those with significant amounts of cash to provide startups with the capital they need to get their businesses off the ground.

The term archangel can also be used to describe an external advisor hired by a group of angel investors to perform due diligence and provide advice on business opportunities that are being considered by the group.

Understanding Archangels

Angel investors, also known as seed investors or angel funders, are high-net-worth individuals (HNWIs) who deploy their own funds to provide startup capital to promising early-stage ventures. They usually have a fair bit of cash laying about and seek a higher rate of return (RoR) than what traditional investments offer. These returns typically amount to more than 25%. Archangels — also called super angels — are investors who invest in multiple projects that end up being commercially successful.

Startups often generate little to no profit and don't have the same access to capital as their more established peers. In the absence of sustainable cash flow and collateral, sometimes their best option is to fund expansion via angel investors. These are individuals who inject money into the business in exchange for an equity position.

Silicon Valley, where many of the world's biggest technology companies got their start, is home to numerous archangels. While most angels are active and hands-on investors, they may sometimes need the services of an archangel or external advisor in areas like legal and business development.

Special Considerations

Archangels sometimes have a reputation for quickly flipping their investments, which generates more wealth for themselves. They may also make fewer demands of the companies they invest in compared with venture capitalists, who use a different barometer for measuring the growth and success of the companies they back and generally always demand a seat on the board of directors in exchange for a sizable stake of equity.

Benefits of Archangels

An archangel may serve as a relationship builder among angel investors, leveraging their clout and notoriety to bring them together for deals. Archangels build up reputations based on their successful exits, especially deals with many multiples in the return on investment (ROI).

As their presence offers them greater traction in the investment community, archangels can find themselves wielding the necessary clout to attract other investors to funding rounds. Even if the archangel is not participating in the round, but has already invested in the company, they can connect owners in search of backers with groups of potential investors.

The presence of an archangel in a funding round may quickly attract other backers to the deal.

An archangel may be known for helping other angel investors see positive returns on their investments by steering them toward deals that prove to be lucrative for all participants. Their insight may be subsequently sought by other investors as they have shown a knack for choosing the right teams and companies to put their money toward.

Archangels vs. Venture Capitalists

Despite the lucrativeness of their past deals and the influence they hold, an archangel might not be considered to be a venture capitalist (VC). This may be because an archangel continues to invest in early-stage companies, rather than the more mature companies venture capitalists focus on.

Angel investors are generally willing to take on the risks associated with a new company. In contrast, venture capitalists firms tend to get involved later down the line, preferring to invest pooled funds once they have an indication of the amount of money the company is capable of making.