You've probably heard the rumors: Angel investors aren't as angelic as they used to be. Such investors, generally wealthy individuals, have been essential to American entrepreneurs, betting on early-stage ventures that frighten most other investors. But angels are getting a lot harder to please. And that has implications for any entrepreneur seeking seed funding.

The good news is that angels are picking up much of the slack from venture capital funds, which are increasingly focusing on later-stage outfits. Last year alone, 42,000 angels plowed $18.1 billion into early-stage companies, compared with a mere $304 million plunked down by VCs, according to a recent study by the University of New Hampshire's Center for Venture Research.

But while angels have always had high hopes for the companies they invest in, these days they rely a lot less on their guts than they do on the facts, says David Rose, chairman of the New York Angels, a 50-member group in Manhattan.

Not surprisingly, the shift dates back to the Subprime mortgage crash — which made all investors more risk-averse.

As a result, most angels are interested only in companies that are likely to post positive cash flow within 12 to 18 months. "I want to know if I can double, quadruple, or increase my investment tenfold in five years," Rose says. Unless you already have a service or product, a few customers, and an exit plan, that's not likely to happen.

Rudy Prince learned that lesson last year when he began drumming up financing for Wifi On The Fly, the telecom start-up he founded in Dallas in 2008. Back in 2004, Prince had landed $500,000 from angels for his first company, FaxMe, so he thought he knew what to expect. FaxMe’s product — software that lets users send faxes over the Web — was little more than an idea on paper.

But the angels had no problem signing on. This time around, Prince had a fully developed product — the Wifi On The Fly, a gadget that lets dial-up users connect to the Internet without wires.

What's more, Prince and his partners had already ponied up about $200,000 in seed money, so they were asking angels to participate in a first round of investing, which is considered less risky than standard angel deals. Nonetheless, he says, the angels he talked to were extremely skeptical. "They're no longer relying as much on leaps of faith when it comes to investing," he says.

Still, by waiting until his start-up was perfectly positioned, Prince increased his chances of landing an angel deal. After Prince tapped his network of friends and business associates, a friend introduced him to a group of former telecom entrepreneurs, who plowed $1 million into Wifi On The Fly last July.

The financial terms weren't much different than they had been in '04. Both groups of angels, for instance, expected returns equal to between five and 10 times their initial investments. But today's angels weren't willing to wait.

FaxMe's angel investors didn't receive a return for 5 years.

This time around, the pressure is on for Prince to make an exit within five years. With IPOs harder to pull off than today, Prince plans to focus on finding a buyer. He would not disclose the equity stake his angels received in the FaxMe’s and Wifi On The Fly deals.

But, in general, angels have always expected to get 25% to 35% of the company stock. Of course, the value of the stock varies depending on the market value of the company's assets, and, since Prince's first business was less mature, it garnered a much lower valuation than Always On.

Still, in one way at least, landing angel financing has gotten easier. Until recently, there was no clearinghouse for angels, making them difficult to find. Last year, however, the Ewing Marion Kauffman Foundation launched the first angel investor network — the Angel Capital Association — which has 150 members so far. Its website (www.angelcapitalassociation.org) features a directory of dozens of angel groups, sorted by state and region.

Even though angels are getting tougher, they've remained true to their name when it comes to offering advice and support to entrepreneurs. "They bring a lot of experience and know-how to the table," says Prince. "They have a real interest in seeing you do well." Prince's angels, for their part, used their industry connections and expertise to help him bring the WiFi On The Fly to market in time for the 2011 holiday season. This year alone, he expects his fledgling company to generate an impressive $10 million in sales. As far as Prince is concerned, he's found the perfect match. "If you can get good angels that offer more than a check, then you have found a great fit," he says.

Article Courtesy of Inc Magazine.

Here's what they're looking for, how they operate, and what they expect for their money .

The phrase "angel investor" conjures up a vision of some kind of saintly benefactor willing to take a flier on some whimsical notion of a business that has little chance of success. Nothing could be further from the truth. Angels invest for the same reason other people do: to make money.

They hope that some of their investments will reap them high rewards in return for the high risks they are taking. They are well-off people — often former company builders — who are willing to put anywhere from $10,000 to half a million or more into promising start-up companies.

According to the University of New Hampshire's Center for Venture Research, there were 225,000 active angel investors in the U.S. last year.

But until recently, angel investors have been difficult to identify.

That's because individual angels generally like it that way, if only because they aren't terribly interested in having thousands of entrepreneurs flooding their e-mail boxes with business plans or getting buttonholed every time they attend a cocktail party. "Staying under the radar allows them to pick and choose their sources for their quality deal flow," says Jeffrey Sohl, director of the Center for Venture Research. "People find them anyway, but the harder to find them, the better."

Now, however, angels are forming groups, at least in some measure to become more visible to people with ideas. Angel groups are generally local organizations made up of 10 to 150 accredited investors interested in early-stage investing. In 1996 there were about 10 angel groups in the U.S.; now there are more than 600. The reasons for this growth seem clear.

Investors benefit from a group's organizational structure, which can sift through hundreds of business plans and select a few entrepreneurs to present their opportunities to the group as a whole at regular meetings, which are generally monthly. And entrepreneurs are able to identify local entities that can evaluate their plans. Even if they don't make it to a presentation, they can usually get some feedback on what they need to do to improve their plans and businesses to increase the odds of getting funding down the road.

The groups themselves are getting increasingly organized. A few years back 46 investor groups formed the Angel Capital Association. The association, which now has 150 member groups, wants to establish best practices for angel groups, collect data, establish benchmarks, and encourage individual angels to join groups.

The operational details of angel groups vary greatly. Most take executive summaries or business plans by e-mail; sometimes the groups' websites have a template for entrepreneurs to fill out. Usually a staff or screening committee will select a group of businesses for further investigation, and out of that bunch a few will be invited to present before the entire angel group.

In some groups, individual members make their own investment decisions after the presentation. Other groups operate with a fund that is the primary investment vehicle or that supplements the individual investments.

Angels like companies that appear likely to grow at 30% to 40% annually and then be bought or go public. Don't show them a plan that doesn't feature a way for them to make a profitable exit.

What are angels looking for? Simple, says Jeffrey Sohl: high-growth companies, meaning companies that appear likely to grow at 30% to 40% annually and then either be bought or go public. By his estimate, 10% to 15% of private companies fit that description. The problem, he says, is that "about 80% of the entrepreneurs think they're in that 10% to 15%." Many angels and angel groups are flooded with business plans that don't even feature a way for angels to make a profitable exit. These won't pass the first screen.

Last year, according to the Center for Venture Research, 18.5% of deals that got through early screens and were presented to investors attracted funding, up significantly from 10% in 2009, which is about the historical average, and getting dangerously close to the 25% that were funded during what Sohl calls "the crazies of 2000." Sohl fears that if the rate continues to rise, it could represent a flood of inexperienced angels getting into bad deals. On average, each firm that received angel money in 2010 got $469,000.

The best time for an entrepreneur to seek angel funding, says James Geshwiler, managing director of the Boston-area CommonAngels and chairman of the Angel Capital Association, is when a business is at what he calls the go-to-market stage. "They have a working prototype, they can show it to us, we can see how it could actually work in several different places, and they have some initial discussions and initial partnerships going on," Geshwiler says. "Still, the world is their oyster." This go-to-market moment is also, he observes, a good time for angels to caution entrepreneurs on what not to do. Two common pitfalls, he says, are wanting to sell directly to consumers — as opposed to selling through channels the angels are familiar with but the entrepreneur may not be — and entering a burdensome partnership with a big corporation.

Although angel groups are now the most visible sources of angel funding, Sohl estimates that they are doing just 15% to 20% of all angel deals. Individuals quietly investing still represent the bulk of activity. In addition, there are investment firms that do angel investing, including VC firms that specialize in early-stage deals.

Negotiating the terms of a deal are still tricky and disagreements about operations can be difficult to hash out. But that's no reason to rule out working with an Angel Investor.

When you begin looking for ways to fund your business,idea or opportunity (outside of your own checkbook) its important that you start by looking in an area that is going to suit your needs.

Meaning…

It's important to know the different types of capital available and how each one is going to effect the way you operate.

Here's a short list of what your options are:

Loans
Grants
Venture Capital
Angel Investors

Of course there are many more options available than these listed here
but for the sake of time we will deal with just these in today's installment.

OK.

So how do these sources effect the way you operate.

Well.

LOANS are considered to be "straight debt" financing. Loans must be paid back, with interest, at specified times, and can be a drain on cash flow in a developing business.

If you want to finance your idea with loans, then you'll need to decide on whether you would like public or private debt, and short or long-term payments.

You'll also have to qualify… meaning you must have assets available for collateral, either your own or a co-signers.

GRANTS on the other hand, whether public or private,  are funds which usually doesn't have to paid back.

And are a great source of money for someone either thinking about
starting a business or for someone who has a business which is already established.

If you decide you want to go down the grant path. Then you
MUST make sure you know which types of grants to apply for.

A lot of people waste months and months of their time filling out applications and writing proposals for grants they have no chance of receiving. So research is a must.

VENTURE CAPITAL is usually aimed at newer ideas or projects, but can be a source of money for an established business or opportunity as well.

But unlike Loans and Grants… with Venture Capital you must
be willing to give up a piece of your business, idea or opportunity
in exchange for this money.

In other words, you have to know what you are willing to give up before you can "get". And just like with grants, more time is wasted chasing Venture Capital than any other method out there.

Why? Because each Venture Capital Company invests in different types of ideas, businesses and opportunities. And you should know what their MAIN area of interest is before you begin contacting them otherwise you'll face certain rejection. So again you have to do your homework.

ANGEL INVESTORS are a great source of money and can be
counted on to finance a business or idea at any time. The terms of their investment are usually up for negotiation and can be really flexible to suit your needs.

Meaning they may just want interest on their investment or they may want a piece of the action. And an advantage you have when dealing with an Angel Investor is they usually bring other Angels along for the ride … meaning more capital
available for you to use.

But for the untrained eye, Angel Investors can be hard to
find. So without some background expertise on how to locate them most people won't even take the time to try.

So there you have it a crash course in the types of capital  available and the pros and cons of each one.

Remember it's a good idea to know what you kind of capital you are
looking for and how much you need before you begin your search so you don't waste a lot of time and effort on sources that can't help you.

And if you haven't had a chance to go through our course: The Definitive Guide To Raising Capital than you have get your hands on it as soon as possible!  It's the best education you'll ever receive on the subject of raising capital you will ever find

In tomorrow's installment we'll get you started on your way to raising the capital you need by showing you exactly where to locate your chosen funding source.

If you'd like more information about The Definitive Guide To Raising Capital please click here.

Bob Ryan is widely acknowledged as one of the leading experts when it comes to helping ordinary people raise all the capital they need to fund their business ideas.

His reputation for helping others succeed is well known in the business financing world.  Through his unique methods for raising capital he has helped his students raise Tens of Millions of dollars for their business ideas. You can find his insight and expertise when you visit his website www.fundmyideas.com or when you read his blockbuster book The Definitive Guide To Raising Capital.

These lines of credit are available for anyone who currently owns a business, is looking to purchase a business, or who is thinking about starting a business soon.

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There are no major qualifications needed to secure these lines of credit either.

These lines of credit are ONLY available to people who own a copy of my Definitive Guide To Raising Capital — How To Fund Your Business In 30 Days Or Less Course.

Banking 101

Trouble getting a good credit line or loan from your local bank? Maybe it's time you looked elsewhere.

When he founded NetForce Technologies, in 2003, Tommy Wald struggled to get his first line of credit. Banks rejected him. At first they claimed Austin-based computer-network consultancy NetForce was too small; a few years later they passed again on NetForce, because it was already saddled with a Small Business Administration loan. But in 2008, when NetForce had finally grown enough — to $5 million in sales — to get bank approval, it was the company's CEO who balked. Though Wald was low on cash and feeling squeezed, he didn't like the terms the banks offered. Then his controller raised one last possibility: a credit line from a nontraditional source — an investment bank. Within weeks Wald had a $300,000 line from Merrill Lynch. "I didn't realize they were in the business of financing," he says.

Considering alternatives to bank financing is always a sound idea for growing companies, but it's especially essential right now. Mainly because industry consolidation has worsened banks' customer service on small accounts, small businesses left their banks in record numbers last year, according to PSI Global, a financial-services-marketing group in Tampa. In addition, SBA numbers show that the amount that banks lend to small companies has dropped significantly. And Peter Garrison, a banking expert with Greenwich Associates, which researches financial institutions, recommends exploring nonbank providers because of the interest-rate and recession risks of today's economic climate.

To Wald, the matter was a lot simpler than all that. He just wanted the best credit line he could find. At the time, NetForce's only short-term financing was a flooring account, a line of credit that could be used only for equipment purchases. The arrangement was adequate for NetForce's early days, when 90% of the company's sales were hardware related. But as the company evolved, its sales focus shifted from equipment to services — and Wald needed more credit to maintain his cash flow.

So NetForce began to hunt for a credit line in the form of accounts-receivable financing. Controller Sherri Holland led the search, beginning with local banks. From contacts at NetForce's competitors — ex-employees, pals of current employees — she found out which local banks were lending to the competitors. NetForce chose one local bank based on those findings and filled out the paperwork.

Wald and his co-owner, Tony Williams, were disappointed with the bank's answer. The bank offered a line worth 60% of NetForce's monthly accounts receivable under 60 days old — about $200,000 on average. NetForce had hoped for a line that would hover around $400,000. The bank sought to fill the gap with a $200,000 SBA loan, something Wald wanted to avoid at all costs, recalling the consequences of the $30,000 SBA loan he'd received in 1996 (and since paid off): NetForce had trouble securing the kind of financing it needed because the SBA had taken a blanket lien on all the company's assets. Without the right to seize assets in the event of a default, banks were scared away. "Here we were, with a history of being in the black, and this bank throws the SBA at us," Wald says.

Holland then switched her sights to national banks. To learn more about what to focus on in her bank dealings, she read Channel Financial Control, a financial magazine for the computer industry. Her key question was, What are your fees — hidden or otherwise? She also wanted to know who would be handling NetForce's account on a daily basis. Only one salesperson gave her a name. When she contacted that person, Holland was shocked at what she discovered. "The salesperson had promised no hidden fees," she says. But at that bank, receivables financing involved cash-management fees: $85 a month for a lock box, 40¢ per check deposited in the lock box, $16 a month for account processing, and $75 a month for the ability to check postings on-line.

All Holland had expected to pay was a $1,500 setup fee. What peeved Wald was that the bank, like all the banks NetForce talked to, required a lock box with receivables financing. For six years he'd been in complete control of all NetForce's receivables; with a lock box, all account payments would automatically go toward paying off the credit line. Frustrated, NetForce held off on a decision. Then Holland remembered that co-owner Williams had once introduced her to his personal Merrill Lynch broker, who had mentioned that Merrill worked with businesses, too. Holland found the brochure and called the broker.

Next she faxed NetForce's financial information — internally generated financial statements, along with tax returns for the past three years — to one of Merrill's Austin branch offices. Based on those numbers, the Merrill representative gave Holland — -on that same day — -an estimate on the size of the credit line Merrill could offer. (The actual credit approval came three weeks later, since all Merrill's credit decisions are centrally processed through a Chicago office.)

The Merrill credit line didn't require a lock box, nor did it fluctuate based on a monthly accounts-receivable review. Instead, it gave NetForce a fixed line, based on the company's net worth, at an interest rate of prime plus one and a half — better than rates the banks offered. Since the line is fixed, NetForce won't be in the awkward position of having to pay it down whenever collections are slow for a month. Nor will it have to annually buy the credit line down to zero, a common bank requirement. And whereas the banks required monthly financial reports from NetForce, Merrill needs only quarterly reports.

The downside to the Merrill credit line is also a result of its fixed value. For all its reporting hassles, a credit line tied to monthly receivables grows as revenues grow. But if NetForce has three huge months, its credit line remains the same. "It could be an issue somewhere down the line," says Holland. Worried that the $300,000 line Merrill offered wouldn't be enough in peak times, NetForce appealed Merrill's initial estimate. NetForce didn't get a larger line, but Merrill agreed to subordinate its lien position on NetForce's assets should NetForce need financing from other sources. "No bank would do that," says Holland.

By allowing NetForce to pay vendors easily within terms, the line has boosted the company's cash flow dramatically, giving NetForce more funds to grow its service side — which now accounts for more than 60% of sales. Every payment gratifies Holland, who knows that NetForce was just a signature away from committing to a bank. And after her research, she also believes that NetForce has made the best choice. Wald, for his part, is just proud his business is past the point of federal loans and lock boxes. "It makes you feel good," he says, "that you can finally graduate to that level of respect."

Nonbank alternatives: a sampler

Don't know where to turn in search of nonbank financing? This list, while by no means comprehensive, is a good beginner's map of the types of institutions that have something to offer.

• Investment houses.
• Large financing institutions.
• Credit-card companies.

If you're interested in non-bank financing.  You can get a recent list of active non-bank financing sources in The Definitive Guide To Raising Capital — How To Fund Your Business In 30 Days or Less.

Of course my staff was all for the redesign but it took me a while to get used to it. 

Anyway.  I'll be able to do a lot more things with this website now that we have it up and running. 

I promise to keep you guys up to date on the latest business funding news and opportunities through this blog.

So stay tuned!