Guide to Angel Investors
The following is a brief guide intended to introduce
entrepreneurs to the world of angel capital.
Many small businesses fail for lack of adequate funding; some of these
could have been prevented if an entrepreneur had known an angel investor.
The typical angel investor
Angel investors, sometimes called business angels or
simply “angels,” are usually wealthy individuals, many times with successful
business and entrepreneurial backgrounds.
Some are professionals such as dentists, accountants, attorneys, and
real estate investors. They provide
private capital to companies, usually in a startup or early stage company that
venture capitalists consider too risky.
Most of the time they are over 40 years old and are accredited investors
by the SEC guidelines. By this
definition, they must have a net worth of at least $1 million and in the 2
previous years have had income of at least $200,000 individually or $300,000 in
joint income with the expectation to do the same for the current year.
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Helpful Hint
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Most angels invest anywhere from $10,000 to over
$500,000 in a single deal. If you need between say $500,000 and $1-2 million, you still may be able to use angels. "Superangels" and angel
networks that form syndicates sometimes provide capital for these
larger deals. Investors sometimes increase their typical funding amount for an especially promising business
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How can you find an angel investor?
There are a variety of websites that can guide you to
angel investors. One of these is the Go
BIG Network (www.goBIGnetwork.com). You
can connect with angel investors, other entrepreneurs, business advisors,
service providers, and job seekers through the network in order to help your
business succeed as quickly as possible.
If you are seeking funding, you can search for angel
investors based on your preferred location, size of investment sought, and
industry. These factors allow you to
select a good investor match. Then with
a subscription you can find their contact information and begin actively
promoting your business.
Alternatively, you can post a “Request” to a targeted
group of investors. It is similar to a
classified advertisement that reaches a large number of investors fitted to the
amount of investment you are seeking, your industry, and location. By including your contact information investors
will be able to contact you. Requests
allow you to get a better gauge on the initial interest of an investor since
they contact you.
If you prefer not to use the internet to find angel
investors, you will need to rely on personal contacts. While you may not know any angels personally,
perhaps your friends will. You should
try to have no more than two degrees of separation between you and the angel if
at all possible. Angels invest with
people they trust, and if someone they trust refers you, it is easier for them
to believe you are trustworthy.
Why do they invest?
Angels fund companies for multiple reasons. Some desire to live the life of an
entrepreneur again. Others simply want
to utilize the contacts and experience they have gathered. Still others want to stay up to date on the
latest developments on a certain industry.
The motivation for their investment can play a large role
in future entrepreneur-investor relations.
As an entrepreneur, you must realize that an angel who in essence is
seeking to become a partner will want a large amount of control and involvement
in the company. You must be prepared to
cede that control along with equity. If
you are not willing to concede that level of decision making, then a better fit
should be found.
However, the difficulty comes when you only have that one
angel and a short time before your current funding dries up. Sometimes it is necessary for the success of
the company to take the money and allow the future to be determined in
significant portion by the angel. If the
angel wants experience as an entrepreneur you will probably have much more
difficulty than if the angel has had successful ventures in the past. Keep in mind that the goal of the angel is
for you to succeed so they can make money.
Let reason be your guide as far as possible, but if an angel investor
simply does not feel like a good fit, try to avoid their money.
Where did the term angel investor originate?
“Angel investors got their name 100 years ago in New York
City when struggling playwrights--with limited financial means--had theatrical
productions funded by a wealthy and visionary individual (usually at the last
minute). It was likened to an angel floating down from heaven with money so the
show could go on. But these were also very astute investors with a keen eye for
plays with great market potential for tremendous profitability. The bottom line
is that these angels funded productions to get in on the ground floor of an extraordinary
opportunity for financial gain. Plain and simple, they were in the deal to make
money, and in today's business financing arena, that hasn't changed.”
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Whether you find your angel investment from your rich uncle
Ted or a prominent angel investor group, it’s important to know that the
universe of angel investors looks like and what you’re really shopping
for. If all you need is a little bit of cash to be on your way, then
perhaps looking to your friends and family is the way to go. However,
if you think what you really need is a partner to grow this idea to the moon,
it may be worthwhile to pursue a professional angel investor as not only a
source of funding, but also a mentor.
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Sources: http://www.entrepreneur.com/article/0,4621,277472,00.html