Are you trying to find an angel investor?

The typical angel investor has an income that exceeds $100,000, has a net worth in excess of $1,000,000, and has previous entrepreneurial experience.  Some angels are wealthy professionals investing for solely financial reasons, but most also have other reasons like the enjoyment of advising entrepreneurs or staying current on the latest developments in an industry. 

Where should I look to find an angel investor?

One of the quickest resources for finding angel investors is the internet.  Finding angel investors that fit well with your company can be a long process, but online angel directories and portals can be good starting places.  One of these resources is www.Invstor.com.  The Invstor.com Network connects entrepreneurs, business advisors, investors, job seekers, and anybody in the startup community.  Invstor.com allows you to search for angel investors with specific characteristics like their preferred size of investment, preferred industries that they like to invest in, and the geographic areas they serve.  Angels normally invest close to home, so you will need to begin by searching for investors in your area.  You can then contact them directly through the Invstor.com system. 

Alternately you can post a “Request” on the system indicating what type of investment you are looking for.  The idea of request is like a classified ad in your newspaper.  Investors browse these ads when they are searching for deals. 

At the very least you should create a quick profile of your company which will allow you to indicate that you are looking for funding (it’s free and it only takes a minute).  When you do this, investors looking through company profiles will have the ability to see the details about your company.

Usually angels invest in industry with which they are familiar.  If you know your industry has local organizations, attend them and meet as many people as possible.  Local business meetings or chambers of commerce are another step in the right direction.

How should I contact an angel?

Your initial contact can be made either by calling or meeting in person.  In some cases, email may be another option.  Cold calling and emailing someone you have never met are not good options unless they are your only options.  Deals are based around trust, and building trust simply takes time. An angel investor will need to be confident that you are trustworthy, and it is difficult to determine this with entrepreneurs he does not know.  For this reason, most angel investors source deals through referrals from those they know and trust. 

At what stage of the company do angels invest?

Most angel investors fund early stage companies that may already have initial funding from the friends and family of the entrepreneur, but do not have venture capital.  Some angels do bridge financing or later round funding, but these are exceptions.  “Superangels” fund companies on a level similar to venture capital firms. 

What kind of return do angels need?

Typically angels will invest anywhere from $100,000 to over $1,000,000 in one deal.  Especially in angel groups, a syndicate of several angels can be formed for larger deals.  Though it varies from deal to deal and by investor, a return of 25% per year is not uncommon.  Usually an angel expects to keep the investment for five to seven years, though some seek to “cash out” after just a few years.  Regardless, you should have a clear exit strategy.

Investor cash buyouts, equity buyouts, initial public offerings, and acquisitions are the primary ways investors exit. 

How does angel financing differ from venture capital?

Amount of funding provided

Angel investors use their own private money while venture capital firms do deals with money from a large fund.  Because of this, venture capitalists usually seek deals requiring at least one million dollars though the amount of a typical deal will vary by firm.  On the other hand, angel deals are almost always less than that.  

Expectations

A venture capital firm has to manage its fund and report to investors.  Therefore they typically ask for a higher return than angel investors.  They tend to have strong opinions and trends about how a deal should be structured and closed.  Venture capitalists make their living by evaluating deals and making offers.  They realize that of the few deals they do, most will not provide a good return.  Thus they need deals with the potential for “home run” returns.  Any business in a relatively small market space or without huge potential will be ruled out quickly.  Angels, however, tend to be more flexible.  An angel sometimes has been an entrepreneur and understands the process of raising funds.  Many times they invest for reasons in addition to the potential financial returns.