Getting to know angel investors
– Angel Investors, often called Business angels are very wealthy individuals who invest their own money into startup companies, usually at their earliest stage. They are accredited investors but most of them are not professional investors. They are successful entrepreneurs, people who held high management positions in leading firms, and sometimes just wealthy people. Angel Investors, invest in startups for many reasons. It can be as a hobby, a way to stay active after having retired, but also a willingness to promote entrepreneurship by helping entrepreneurs, in other cases they invest because they believe in the projectand want to be part of the potential next big thing.
They all have at least one thing in common. They invest their money to get a significant return on investment. They invest in companies in their infancywhen it’s not clear yet that the company will be successful in its market and sometimes even before it has earned its first dollar. Many Angels specialize in certain fields or market based on their own experience. One of the big difficulties when you invest in startups, which we will see is also shared by venture capitalists, is that you invest in companies that are supposed to have a game changing product.
And to be able to understand the potential of that product you have to have some experience in that market. So it’s only logical that investors focus on fields they know so that they can have a solid opinionon the potential for success of the companies they invest in. Now let’s talk about the types of investmentsAngel Investors get into. Usually they tend to invest individually between $25,000 to $200,000 per dealwhich is usually insufficient in itself.
Angel Investors therefore group around the deal to invest together amounts that range between $100,000 to $1 million dollars and on average, they invest as a group around half a million dollars per deal. Angel Investors are the stepping stone between the funding you get through your own means plus debt and venture capital. Companies that approach Angel Investors usually have a specific project they need to deliver such as developing a product to the point that it can hit the market or put in place the structure the company needs to generate large scales of revenue.
It’s those kind of big milestones that Angel Investors are looking to fund so that upon their completion the company can have its next round of fundingpotentially with venture capital.
Why raise through angel investors?
– Angel investors, apart from being wealthy and bringing in the cash you need to be on your way to success. have competencies and a high level of expertise in one or more fields. Company management will often be one of them. They will bring with them a network of potential customers or strategic vendors, which could greatly facilitate the development of the company, if you leverage that opportunity. Be careful, though, who you choose to accept capital from. Of course, there’s nothing harder than turning down capital.
But it’s possible, and some times it’s preferable. As we just discussed, many angel investors have the willingness to participate in your business, and bring in their expertise. Now if you get funding from someone who understands your field, has experience in it, and with which you can get great mentorship,then all the better. You want something that money cannot buy. If on the contrary, you get the money from someone who does not understand your business, just be aware that it could literally run havoc into your business.
Asking ten questions per minute, asking you to report to him for every decision you make, or worse, becoming a pain in difficult times, and you having to manage him on top of the business difficulties. When you get money from investors, be sure to select the ones that fit with you and your company.
Where to go from here: Using angel investors
– Some business angels work alone. But many of them are part of angel associations. And the best way for you to get started is to find associations near you that are looking for projects in your field and company maturity level. For example, if you are just starting a clean energy company, then you need to look for angel investors specialized in clean energy and in seed funding. A great place to start is with the ACA, the Angel Capital Association, which you can find at AngelCapitalAssociation.org.
This is a great place to start as it gathers many angel groups and a lot of good content to get you started.There are many different processes, then, to get in contact with those angels, depending on how those associations are organized. But, in many cases, you send in your business plan or, at least, a short version of it with the executive summary and a financial plan.And, if you get picked, you then pitch in front of themwith the objective of creating a contact with one or more of them with which will work on the following realms of discussions down to securing the capital you’re looking for.
But angel associations are not the only way to meet business angels, or angel investors. You also need to network a lot and you will be surprised at how many people in your direct network can get you connected with such people. There could be investors in yourprofessional network, personal network, or, it could even be your landlord. That happened to me once.There are also many conferences and trade showswhere you can meet angel investors.
The key is to get out there and meet people.