If
your company is too new, too risky and unproven, or too offbeat to qualify
for traditional bank financing and attract venture capitalists, you may want
to look for an angel. An angel is a private investor, often a successful
entrepreneur, who invests in small businesses close to home for a variety of
economic and personal reasons. Usually, angels are friends, relatives, or
colleagues. Successful entrepreneurs, especially retired ones, are
especially likely to become angels.
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Although the figures vary widely, angels are believed to provide billions
of dollars in capital to entrepreneurs every year. Based on demographics,
studies characterize angels as follows:
- They are wealthy
- They are usually self-made as opposed to inherited wealth
- Is usually in their sixties; almost never below forty
- Angels prefer to invest in companies they are familiar with. They
usually seek out small and growing companies in their own industry.
How do you find an angel for your business? Here are some tips:
1. The first place to look for is among your business associates. You have a greater chance of securing
financing from people who knows you. Then ask your business associates to
ask their acquaintances. However, the farther the relationship and the
lesser the prospective angel knows you, the lesser the chances of securing
the investment unless they have a unique understanding of your
product.
2. Network, network and network. Join
a professional organization or trade group for your industry. Begin
attending meetings on a regular basis. This is the best way to get
acquainted with successful business owners in your field.
3. Stay local. You don't need to go
beyond your geographic area to find investors willing to take their chances
with your venture.
4. Discreetly inquire about people who appear to
be the most successful members of your industry. Pitch the idea
to your lawyer or accountant - they may be interested or know someone who
could be interested. They may have clients who frequently invest in a new
and growing business.
4. Research on the Internet. Some
sites provide listings of angel investors per geographical location, while
others provide focused advice on getting investors for your small business.
Check out the following sites:
However, the rule is always to raise money at the right time. Convincing
angels (or anyone else) to part with their cash to support your venture
takes a lot of time and hard work. Be sure to dedicate enough time and
budget in your search for financing.
Once you find a prospect, send a letter requesting a short meeting to
discuss the proposal. A more effective approach is to be personally
introduced to the angel investor by a common friend. People are more
inclined to be receptive to offers from other people if the request come
from people whom they trust.
In the event that the prospective angel shows interest in your business
idea, make sure that you have prepared a well-researched detailed business
plan. Your plan should emphasize why you need additional financing and
exactly what you plan to do with the money. Write an executive summary for
the plan that spells out in one page why someone should invest money in your
business. Explain too, how you can repay the money and when. Better yet,
have presentation materials ready based on your business plan in order to
have a more effective discussion with your prospective investor. You want to
appear relaxed, confident and knowledgeable as possible.
If the investor is interested, bring in your lawyer and accountant to the
negotiations. Informal investors usually invest from $10,000 to $100,000 in
each venture. While angels may be able to invest considerable money in your
venture without requiring the kind of documentation that other investors do,
put your arrangement in writing to reduce misunderstandings.
Angels may prefer to make straight loans at rates comparable to banks or
slightly higher rate. They generally expect to lend their money from three
to seven years, with some guaranteed exit provisions such as mandatory
buy-out. Others may want to be repaid in stock if your company eventually
goes public. Be sure to tailor the financial arrangements to fit your
angel's needs.
Angels can also provide you, not just with money, but guidance, advice
and a mentor relationship. Also called "advisory investors," they
are generally not interested in controlling the business, but may require
you to meet certain business goals or follow certain business practices. If
possible, encourage your angel to become a member of your informal advisory
board. Many angels like to keep a close eye on their money; plus, they can
offer you invaluable advice. If your angel is well connected in the local
business community, he or she may help you find additional investors,
introduce you to a banker or an attorney, or bring in new customers. An
angel may also help you gain membership in a club or professional society
that will benefit your business.
Remember that every relationship is different. The key to success is
doing everything you can to increase your angel's comfort level so the
person's investment and relationship with you and your business will be
longstanding and profitable.
Additional Recommended Readings:
About the Author:
Isabel M Isidro is the Managing
Editor of Power Homebiz Guides. Visit the
PowerHomeBiz Small & Home Business
Blog and
Women Home Business
