Where can you find free directories of angel investors?

A quick search online will result in a variety of free angel investor lists.  Many of these are divided by geography since angels typically invest close to their home.  One of these websites is www.Invstor.com.  It is a community connecting entrepreneurs, investors, advisors, job seekers, and service providers.  Membership is free, though a small fee is charged for subscriptions to get the contact information of network members.  Entrepreneurs should tailor their search to investors specifically interested in their industry.  Sometimes, especially with angel investors, this is difficult to do since many angel investors find deal flow through their own network of contacts.  In this way, angels can control the quality of the deals they see.

The network of an entrepreneur is a free method of getting an angel investor.  Since angels invest close to home, it may be more effective for an entrepreneur to be referred by local professionals such as doctors, lawyers, accountants, and bankers.  To do this, he may rely on his network to provide quality contacts or begin developing his network further through networking meetings and local business organizations.

How should you contact them?

 Since most angel investors are at least 40 years old, many are accustomed to doing business in person via phone or even by fax rather than email.  The entrepreneur may contact them initially by phone to save time, and if the investor is interested a face-to-face meeting should be arranged.  Professional appearance and manner is essential for building credibility and trust.  A deal hinges on the relationship between angel and entrepreneur, so an entrepreneur should do everything in his power to build and maintain this relationship.  He should keep in mind that the an angel is taking a huge risk by investing in a startup company, and therefore expects a large return.  The angel will require strict budgets and sales goals.  But in order to gain the experience and contacts in addition to funding, an entrepreneur must be willing to give up equity and possibly some decision-making. 

What do angel investors want to see in a startup company?

Angel investors are searching for a variety of conditions in a startup business plan.  First, the angel must be convinced that the entrepreneur knows the business and industry inside and out.  The business plan must be well thought out and be able to answer the basic questions of any investor.  The financial projections must be reasonable with expenses listed comprehensively.  It is a good idea for an entrepreneur to project numbers based on different assumptions.  An angel realizes that projected numbers usually are inflated when compared with the actual data later.  The marketing portion of a business plan should tell the same story as the financials.  Finally the angel investors will want to see an experienced, successful management team that is able to execute quickly.   They also require willingness on the part of an entrepreneur to compensate for weaknesses by hiring capable people.

Motivation of an Angel Investor

 Angel investors provide funding for a variety of reasons.  An entrepreneur needs to uncover their motivation because it could have direct affect on their desired role in the startup.  If an entrepreneur wants an angel who will only act as an advisor but the investor views it similar to a partnership, the potential for problems increases drastically.  An entrepreneur can also benefit from an angel with a large network of relevant contacts.  Sometimes important deals are obtained through the influence of an angel.  These contacts are especially important if they are in the same vertical market as the contact.  Third, an angel should bring business experience and advice to the table.  Finally, an entrepreneur should contact former employees and colleagues in order to get a sense for how the angel works with people.  The personalities of both the angel and the entrepreneur play a large role after a deal is finished if they need to work together.  It is crucial that the investor and entrepreneur are able to work together well. 

What exactly is an angel investor?

“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.”

Sources:    http://www.entrepreneur.com/article/0,4621,277472,00.html

            “An Explanation of Angel Investors” by David Newton