If your idea is too new, too risky and unproven, or too offbeat to
qualify for traditional bank financing and attract venture capitalists,
you may want to look for an angel investor.
An angel is a private investor, often a successful entrepreneur, who
invests in small businesses close to home for a variety of economic and
personal reasons. Usually, angels are friends, relatives, or colleagues.
Successful entrepreneurs, especially retired ones, are especially likely
to become angels.
Although the figures vary widely, angels are believed to provide
billions of dollars in capital to entrepreneurs every year. Based on
demographics, studies characterize angels as follows:
*** They are wealthy
*** They are usually self-made
*** Is usually in their sixties; almost never below forty.
How do you find an angel to help fund your idea?
Here are some tips:
1. The first place to look for is among your business associates.
You have a greater chance of securing financing from people who
knows you. Then ask your business associates to ask their
acquaintances. However, the farther the relationship and the
lesser the prospective angel knows you, the lesser the chances
of securing the investment unless they have a unique understanding
of your product.
2. Network, network and network. Join a professional organization
or trade group for your industry. Begin attending meetings on a regular
basis. This is the best way to get acquainted with successful business
owners in your field.
3. Stay local. You don't need to go beyond your geographic area to
find investors willing to take their chances with your venture.
4. Discreetly inquire about people who appear to be the most
successful members of your industry. Pitch the idea to your
lawyer or accountant - they may be interested or know someone
who could be interested. They may have clients who frequently
invest in a new and growing business.
However, the rule is always to raise capital at the right time.
Convincing angels (or anyone else) to part with their cash to
support your venture takes a lot of time and hard work.
Be sure to dedicate enough time and budget in your search for financing.
Once you find a prospect, send one of the killer contact letters from my
course requesting a short meeting to discuss the proposal.
In the event that the prospective angel shows interest
in your idea, make sure that you have prepared a well-researched
detailed business plan.
Your plan should emphasize why you need additional financing
and exactly what you plan to do with the money. Write an
executive summary for the plan that spells out in one page
why someone should invest money in your business.
Explain too, how you can repay the money and when.
Better yet, have presentation materials ready based on
your business plan in order to have a more effective
discussion with your prospective investor.
You want to appear relaxed, confident and knowledgeable
as possible.
If the investor is interested, bring in your lawyer and
accountant to the negotiations. Informal investors
usually invest from $10,000 to $100,000 in each venture.
While angels may be able to invest considerable capitalin your venture without requiring the kind of documentation
that other investors do, put your arrangement in writing to
reduce misunderstandings.
Angels may prefer to make straight loans at rates comparable to
banks or slightly higher rate. They generally expect to lend their
money from three to seven years, with some guaranteed exit
provisions such as mandatory buy-out. Others may want to be
repaid in stock if your company eventually goes public. Be sure
to tailor the financial arrangements to fit your angel's needs.
Angels can also provide you, not just with money, but guidance,
advice and a mentor relationship. Also called "advisory investors,"
they are generally not interested in controlling the business, but
may require you to meet certain business goals or follow certain
business practices. If possible, encourage your angel to become
a member of your informal advisory board.
Many angels like to keep a close eye on their money; plus, they
can offer you invaluable advice. If your angel is well connected
in the local business community, he or she may help you find
additional investors, introduce you to a banker or an attorney,
or bring in new customers. An angel may also help you gain
membership in a club or professional society that will benefit
your business.
Remember that every relationship is different. The key to success
is doing everything you can to increase your angel's comfort level
so the person's investment and relationship with you and your
business will be longstanding and profitable.
