An angel investor is an individual who is prepared to invest in the very early stages of a startup’s creation. These types of investments carry significant risk since the startup usually has yet to prove its concept or create a product. These types of investors are referred to as ‘angels’ since they have so much faith in the founders of the startup, or their ideas, that they are willing to risk funds on them. Angel investors tend to provide funds at more favorable terms than other lenders (who would typically price the risk factor into the loan terms).
The other side of this approach is that the angel investor usually receives a higher rate of return on their investment should the startup be successful. They typically back the entrepreneur of the startup rather than a given idea and are focused on helping the proposed business get off the ground rather than seeking a guaranteed return.