Who is an angel investor?
Angel investor is the one who can provide funds for the start ups to the entrepreneurs. She invests in the business which, in her opinion, can fetch her substantial amount of profits. At the same time, start ups are also very risky.
If the start ups are risky then why do they invest?
We need to first understand who are the angel investors. Angel investors, commonly, are themselves entrepreneurs and the motive of investing is also to get the knowledge and exposure of the industry in which that start up would work apart from monetary purpose. They expect 20-30 times returns on their investments in a short period, say 5 years, i.e. the annual return of 300-400% annual return (without discounting the cash flows). They make an exit strategy through IPOs or any other source to limit their risk.