If your business is nursing a new idea along but you need additional funding to take it to the next level, you have several options. You could get a traditional business loan from a bank or you could land venture capital funding. But there is a gray area where bankers aren’t willing to take the risk on your company and venture capitalists don’t think your product is quite big enough to earn a significant return on their investment. Where do you turn?Angel investors.
Who are angel investors?
An angel investor or angel (also known as a business angel, informal investor, angel funder, private investor, or seed investor) is an affluent individual who provides capital for a business start-up, usually in exchange for convertible debt or ownership equity. A small but increasing number of angel investors invest online through equity crowdfunding or organize themselves into angel groups or angel networks to share research and pool their investment capital, as well as to provide advice to their portfolio companies.
Some important points about Angel investors are:
1. Angels are individuals who invest their own $
2. Angel range is $10k – $250k
They do not try to jump on the board of directors at first.
3. They are hard working
4. Introduce you to VC.
What/who is a VC ?
Venture capital (VC) is a type of private equity, a form of financing that is provided to small, early-stage, emerging firms that are deemed to have high growth potential, or which have demonstrated high growth (in terms of number of employees, annual revenue, or both). Venture capital funds invest in these early-stage companies in exchange for equity–an ownership stake–in the companies they invest in. The start-ups are usually based on an innovative technology or business model and they are usually from the high technologyindustries, such as Information technology (IT), social media or biotechnology. The typical venture capital investment occurs after an initial “seed funding” round. The first round of institutional venture capital to fund growth is called the Series A round. Venture capitalists provide this financing in the interest of generating areturn through an eventual “exit” event, such as the company selling shares to the public for the first time in an Initial public offering (IPO) or doing a merger and acquisition (also known as a “trade sale”) of the company.
Some important points about VC are:
1. VC’s invest other people’s money
2. Typically take 20% – 30% of company
3. Looking for 10x – 100x return.
How to attract Angel Investors:
The same strategies you use to get a bank loan should be used with angel investors. You must have a legitimate product or service. You should have a solid business plan. Having initial customers or interested users is a good sign. In short, you need to have made progress and likely bootstrapped your way to some signs of success for an angel investor to be interested in you. If your product or service is failing and you have no customers, you can’t expect anyone to give you any cash.
Seek out an Angel Investor
Most likely you will need to seek out multiple angel investors before you get your first investment.
Where should you look? You start with your closest personal connections and work your way out.
In most cases, you need to be referred to an angel investor. They’re not hanging out on the street waiting to talk to whoever comes by. So to find an angel investor you need to get to know the right person (the one who can refer you to the angel investor you’re looking for), which means immersing yourself in your local business and social community.
Focus on business owners – as these are the people who might be or become angel investors themselves or know an angel investor. Join business and trade organizations and regularly attend the meetings. Joining civic and community organizations are also great for networking. Attend trade fairs and events. Get your face and your name out there and meet as many people as possible.
Seek to Angel Investments Groups
In identifying and attracting an angel investor, companies should seek angel groups that are located in their region.
Friends & Family
Friends & family is one of the best way to prove that you have skin in the game and your a serious entrepreneur. If you go to a rich uncle or your dad got money or your cousin got money, share your business idea with them. It is possible that they might know some angel investors who are looking to invest or they might actually invest their own money in your idea.
Another good way to find Angel Investors is to use Twitter & Linkedin. Around every angel investor uses Twitter actively and you can reach out to them through it.