Angel investors

Angel investors are generally wealthy individuals who invest their own money directly in young companies, usually in seed and early rounds. Most are accredited investors, and many have built businesses themselves. They often team up in groups or syndicates, and they may take a board or advisory seat. Investments are usually shares or convertible debt.

It is a securities offering. Whatever the round is called, selling shares or convertible notes must either be registered with the SEC or fit an exemption. Most companies use Regulation D:

• Rule 506(b): no general solicitation (no public advertising, open websites or broadcasts). Any number of accredited investors, and no more than 35 investors who are not accredited in any 90 days. Approaching people you already have a substantive relationship with, or pitching at a qualifying demo day run by a university, angel group, incubator or accelerator, is not general solicitation.
• Rule 506(c): you may advertise, but every buyer must be an accredited investor, and you must take reasonable steps to check that they are.

An individual is an accredited investor with a net worth over $1 million, not counting their main home (alone or with a spouse or partner), or income over $200,000 ($300,000 with a spouse or partner) in each of the last two years with the same expected this year, or with a Series 7, 65 or 82 license. Your own directors and executive officers count too.

Paperwork: file a Form D notice on the SEC's EDGAR system within 15 days after the first sale. The SEC charges no fee, and the filing is public. States can require their own notice filings and fees.

Finders: someone you pay according to how much they raise, for finding investors, may need to be registered as a broker. Using an unregistered broker can lead to civil or criminal cases and can let investors undo their investment (rescission).

QSBS tax break for investors: for stock in a C corporation issued after July 4, 2025, investors who hold it for at least 3, 4 or 5 years can leave 50%, 75% or 100% of the gain out of their taxable income, up to $15 million each per company, if the company's gross assets were no more than $75 million when the stock was issued and it runs a qualifying active business. Many service businesses (such as health, law, consulting and finance), farms, hotels and restaurants do not qualify. Only C corporations can issue qualifying stock.