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Angel Guide Investor

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.

Helpful Hint

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

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.Invstor.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.”

Summary

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.

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