Angel Investors are not like your average investors: They are people who can financially afford to indulge their love of risk. To be an angel, one must be an “accredited investor,” which the Securities and Exchange Commission defines as someone with a net worth of at least $1 million or an annual salary of at least $200,000. Typically, an angel invests less than $1 million in an early-stage company.
Angels provide additional value beyond the funds they provide. Many were successful business owners and entrepreneurs who can also bring you valuable industry experience, executive knowledge, creative ideas and contacts. When targeting angels, here are some guidelines.
Ten Ways to Find the Right Angel Investor for your Business
Build a Convincing Case: Angel investors may be willing to take on more risk than most, but they still need to see a well thought out business plan with a product that has a documented “must have” need and a competent team behind it. It is rare that an entrepreneur can raise money from angels without clearly defining the competitive market of the business and how the product has a clear competitive advantage over others. Investors will want to know the barriers to entry. Namely, how you will keep competitors from being in the same exact business. Some barriers to entry might include patents, trade secrets and proprietary processes. They will want to know that their money is safe in your hands and that the business has a real chance of success, growth and profit.
Prepare a Great Business Plan: Define your business, your market, your business market, your potential customers and your goods and services as well as the strength of your management team. Let your Angel have a good idea of your financials and how they will profit from investing in your business. Have a great Executive Summary and a concise and informative business plan. Biz Guru can do this for you.
Start the Company, Test the Idea or Create a Prototype: Angels do get involved in the early stages of a company. Demonstrating that you can get or have paying customers in the real world puts you far ahead of entrepreneurs who simply have a business plan and an idea. Later stage companies need to show they have accomplished revenue growth and have paying customers who validate their pricing strategy. If it is a new product you will need a working model of the product and potential customers who have committed to test the product. Having a working and feasible prototype as well as all the associated costings to bring the product to market will greatly increase your chances of attracting angel investors
Put Your Money where your Mouth is: If you want to start a business, be prepared to invest your own money. Entrepreneurs who expect angels to risk money in their venture, better be as confident about their own money. Those entrepreneurs who are not willing to assume such risk are not considered serious by investors and will most likely not receive funding.
Find the Right Angel: Angels typically invest in companies that they know something about. Identifying angels who are suitable for you up-font will increase your chances of success. To help you identify appropriate angels when pitching, ask them what they look for in a company, how much they typically invest, what kind of return they expect on their money. Many angels, having previously been successful entrepreneurs, will tend to lean toward their prior industry experience. Angels frequently want to be actively involved in your business so look for Angels reasonably close to your business center.
Entrepreneurs should also be choosy about who they take money from. Make certain that you really know your Angel, understand their motivation and expectations for exit strategy and ROI (return on investment). Know what benefits they can bring to the table. Knowledgeable angels with good connections can jump start a company and keep it thriving. Well-connected angels can even make it easier to get additional rounds of financing including venture capital.
A poor angel who has money invested in your business will soon be seen as a hindrance, nuisance and brake on your business expansion.
Ask for the Right Investment: Some angels will only invest in seed or start-up companies, while others seek later stage ventures looking for expansion capital. Angel investors will have a dollar range they are comfortable investing. This can range from $25,000 to several million dollars.
- Use your Business Connections: While some investors do read plans that they receive from people they do not know, they prefer business plans referred to them by a trusted source, such as a business associate, lawyer or accountant. If you do not find the right Angel for you, then attend a venture capital conference or angel club meeting.
Build a Professional Relationship: Angels spend a lot of time with entrepreneurs especially in the early stages of building a company so getting along is crucial. To establish a good business relationship you have to personally connect, and have similar expectations, vision and objectives for the company. Being able to answer angels questions without feeling threatened is also crucial.
The 3 P’s Professionalism Persistence and Patience:
Raising capital is a time-consuming, ego-challenging process. It is not unusual for a startup entrepreneur to spend 50%-70% of his time raising capital from angel investors, a process that can average 3-6 months and in an uncertain market, it take even longer.
Efforts to horde stock, inflate valuations or unbelievable financials will make the company less attractive to suitors. Let experienced professionals – lawyers and accountants – handle terms and valuations. Heed their advice.
Entrepreneurs must be committed, passionate, and thick-skinned.
Keep in Contact:
Angels have invested money in you and your business. They will want to know how the company is doing – including both the good and the bad. Staying in touch by phone, email and even a monthly letter will keep investors happy.