Question

define vividly to the understanding of a layman what angel financing means.

Answer 1

An angel investor is a person who invests his money in start-up companies or small scale businesses which does not have any revenue or profits.

For example, X has a business idea wherein the mobile phones could be charged using sunlight instead of electricity. A prototype for the product has to be built and the product has to be manufactured and sold in the market.

Y is a friend of X who is an angel investor. X pitches his business plan to Y. Y is ready to take the risk of X and wants to invest his money in the business. Y thinks that this will become successful. But there is a probability that the business might succeed big time or it might become a failure. Y is ready to bear this risk and he invests his money in this business and receives the stake in the company. Now X will use the money invested by Y for producing/manufacturing the equipment. Y will support X financially and encourages X to perform even better.