Angel investors generally have a net worth of $500,000 to $5,000,000. Typically, these private funding sources also generate an income of $200,000 to $1,000,000 per year. The demographics among these investors vary considerably, but they are all generally looking to make investments of $100,000 to $250,000 into a small business that is located within 50 miles of their home location. This article will focus on issues pertaining to working with angel investors as well as alternatives to angel investment. Almost all angel investors are considered to be accredited investors. An accredited investor is an individual that has a net worth of at least $1,000,000 (excluding a primary residence) and earns an income of at least $200,000 per year.
Typically, angel investors are men between the ages of 45 to 70 that have had significant business and industry experience. Additionally, many of these investors want to be close to home as it relates to them providing money to a small business. As such, most angel investors want their investments to be within 50 miles to 100 miles of their primary location.
Although the angel investment industry is dominated by men, it is important to note that a number of female investors have entered into this industry. This is primarily due to the fact that women have become prominent business people and they want to be able to enjoy the same high reward returns that are associated with small business investing. Generally, investors that are women like to make investments into businesses that are primarily owned by women.
Working with Angel Investors
There is not a single business that does not face any type of specific business risk. A demographic analysis is extremely important when you are presenting to an investment group or group of private investors that have come together to make a syndicated investment. If you’re working with a small business investor then you should also inquire as to working with the small business investment companies that are licensed by this federal agency. Capital from the SBA is less expensive then equity capital, and you should make this determination when you are deciding whether or not to seek private capital.
As an alternative to working with an individual accredit investor, many small business investment companies are not directly looking to take a very large percentage of your business but rather are seeking to provide you with several different types of financing.
Many private investment firms and syndicated angel investment groups employ a number of economists that an extensive amount due diligence regarding your industry. Ultimately, when working with one of these types of firms, the amount of equity you sell is up to the quality of your business and its expected earnings. This is an especially important point to note when focusing on the net worth of a potential individual investor for your company.
You should always consider the risks involved when it comes to seeking an equity investors. Most angel investors high net worth individuals based on the standards set forth by the Securities and Exchange Commission. If you do not own a high gross margin business, that do not have a substantial amount of tangible assets, then you should thoroughly focus on the fact that you’re able to generate a very high return on equity as this is extremely important to an individual investor or private funding source.
Angel investors and private investment firms are generally risk adverse. Again, most private funding sources want to work with businesses that are within one hour of their home. Investment capital always comes at a very high price as you need to provide a substantial amount of equity to your investor. New businesses tend to carry a significant amount of risk.
Angel investors typically are able to make their investment decisions quickly than a venture capital firm, which is one of the best benefits to working with these type of high net worth capital sources.
How to Attract Angel Investors
You are always going to need to have a well drafted business plan when you are working with an angel investor or syndicated group of investors. We strongly recommend that you are able to put together a number of comprehensive documents as it relates to your business as how much equity that you are willing to sell as it relates to your small business investment. In many of our future articles, we are going to discuss the exacting need for a business plan when dealing with an angel investor.
It should be noted that while this is an overview of an angel investor profile, each and every individual that you deal with is going to have a different idea as to what they want as it relates to their investment. In many instances, these private funding sources are going to want a significant amount of control as it relates to your business. In some instances, angel investors tend to take a hand off approach as it relates to the day to day operations of your business. As such, you should negotiate very carefully as it pertains to raising capital from these types of investors.
One of the ways that you can profile your investor appropriately is by having them fill out an accredited investor form that showcases their ability to provide you with capital while concurrently understanding their needs as an individual investor. As we have discussed before, it is imperative that you are able to provide you outside funding source with the equity and ongoing stream of revenue that can be generated by your business as a return on investment.