What is an angel investor network?

An angel investor network is a group typically composed of somewhere between 10 and 150 wealthy individuals seeking to invest in early stage small businesses.  Many times business angels are successful former entrepreneurs and retired businessmen searching for ways to actively invest in a market or stay at the cutting edge of information in a particular field.  An angel investor network benefits all members by providing them an increased knowledge base and the ability to execute larger deals than an individual angel may wish to fund.  It also simplifies the process of due diligence by saving each investor from doing it on his own. 

For ANGELS:

How can I join an angel investor network? 

A wide variety of websites contain directories of angel investors, including networks.  One of these options is www.Invstor.com.  The Invstor.com Network is an online marketplace connecting job seekers, investors, advisors, and startup companies.  Membership is free, and for a small fee, access to a large number of investors and entrepreneurs is available.  Your local Chamber of Commerce may also have information on the nearest networks.  Membership in many of these networks is by invitation or referral by a member.  Therefore angels will find networking is important in order to get involved in an investor group.  If you do not know any angels, local professionals such as doctors, lawyers, and accountants may provide useful direction.

Why should I join an angel investor network? 

Angels have many varying reasons for joining an angel investor network.  Chief among these is the ability to share knowledge and experiences while saving time.  The variety of experiences by angels in many different vertical markets can be of enormous value when an angel is considering investing in a business that is slightly unfamiliar.  Angels invest their own private money, and thus have more to lose than those managing the money of others.  Another advantage is the access to increased deal flow.  An angel can be even more selective and pursue only the opportunities that pique his interest.  Finally, many angels join a group for the camaraderie of like-minded individuals.  Many angel networks charge an annual fee to cover the cost of meetings and due diligence among other expenses.  Some require a specified investment amount over a specific time period along with a work requirement.

Where do I find deal flow? 

Many times angels already have a wide network of contacts, so they do not have trouble finding business investment opportunities.  In fact, they usually enjoy staying off the radar of the mainstream so they can choose the sources of their deal flow.  An angel investor network provides an ideal way to increase deal flow rapidly.  Networking with professionals like bankers, attorneys, and accountants may provide additional deal opportunities as well.

How do I find a good lawyer? 

Angels should seek out a lawyer with previous experience helping startup companies.  He or she should be familiar with the typical deal structures and be able to draft one tailored to the specific needs of an angel.  Referrals from other angels may be the easiest way to find this type of lawyer, though simply meeting with several should provide insight as well.

For ENTREPRENEURS: 

What do angels look for in a deal?

Angels obviously invest to make money.  However, many have other reasons as well.  Some invest in order to live vicariously. Others want to remain up to speed on the latest developments in a particular industry.  Still others want to help other entrepreneurs be successful.

In attracting angel investors, an entrepreneur needs the ability to explain clearly how the startup solves a problem and how the business will be profitable.  Though it varies, many angels are seeking a return of about 25% per year.  An entrepreneur must show how the startup can feasibly accomplish this.  If the business will not grow at that rate, the angel may know others with somewhat lower financial motivation that would be willing to fund the company.  Due diligence should be done by both the entrepreneur and the angel in order to ensure a good fit and an excellent relationship after the funding occurs.

What should I look for in an angel?

Active angels can provide business acumen to a startup.  Many times they were successful entrepreneurs themselves and know what it takes to make a company work.  Many invest in the same vertical markets with which they are familiar, allowing them to provide specific insight and advice for the startup.  Some may have financial experience as an asset.  They may also be able to act as a coach, director, or consultant.