Angel investors can help small businesses get off the ground

While most early-stage entrepreneurs won’t be able to get funding from venture capitalists, angel investors can give them the capital to create a corporation and make their business plan a reality, WBTV reports.

Angel investors don’t give companies a traditional loan like a bank would. Instead, they give entrepreneurs funding in return for a stake in the company. As the business grows, so does their investment. For some businesses, angel investors can step in even before the company starts.

“What we do is we then help them go from that idea stage to a stage where they at least have a prototype done,” angel investor Rajeev Kulkarni told the station. “And then at that point we will go in and invest in the business.”

Because their financial gain is tied to the success of the company, angels can also use their experience to help the company avoid hiccups that may exist in an entrepreneur’s business plan.

To help spur new business formation and job growth, a number of states have passed incentives to encourage angel investors. Over the past few months, Connecticut, Ohio and many other states have passed laws giving angels a 25-percent tax break for their investments.