Angel Investors are considered by many to be the best type of investor in your business. Angels are usually successful business owners and entrepreneurs who can also bring you valuable industry experience, executive knowledge, creative ideas and contacts. They can usually afford to indulge their love or risk and are often seeking new business challenges. To be an angel in the USA, one must be an “accredited investor,” which the Securities and Exchange Commission defines as someone with a net worth of at least $ 1 million or an annual salary of at least $ 200,000. Similar rules exist in other countries.
So how do you attract and investor to your business and are they really what you want?
Build a Convincing Case: Angel investors may be willing to take on more risk than most, but they still need to see a well thought out business plan with a proven product that has a recognizable and eager market need backed by a competent management and development team.
Establishing Your Market: Your angel will need to be convinced that your business will meet the market need and that there is a clear “barrier to entry” from competing companies. They will hardly want to invest in your company only to see your marketing advantage disappear. Typical barriers to entry are: patents, cost of development and proprietary processes.
Your Management Team: Angels they will want to know that their investment is in safe hands. They will want to know the quality and experience of your managers and that they are all committed to your company.
A Great Business Plan: This defines your business, market, potential customers and your goods and services as well as the strength of your management team.
It lets your angel have a good idea of your financials and how they will profit from investing in your business. Your business plan is not only a great selling tool it also assists you in planning and developing your business, placing it on a firm foundation. Consider using a professional business planning service for this. Not only will they work with you in producing a great business plan, but a good company will identify your business weaknesses and suggest better ways to do things. By a good business planning company – that is not one that charges less than $ 500 – you’ll get a plan and nothing more. Look for a company that charges a rate that allows them to offer you consultancy, advice and assistance as well.
Put Your Money where your Mouth is: If you want to start a business, be prepared to invest your own money. Entrepreneurs who expect angels to risk money in their venture, should be as confident about their own money. Entrepreneurs who are not willing to assume such a risk are not considered serious by investors and will probably not receive funding.
Find the Right Angel: Angels typically invest in companies that they know something about. Identifying appropriate angels will increase your chances of success. When pitching, ask them what they look for in a company, how much they typically invest, what kind of return they expect on their money.
Expect the Angel to be Involved: Entrepreneurs should also be choosy about whom they take money from. Make certain that you really know your Angel, understand their motivation and expectations for exit strategy and ROI (return on investment). Your angel will probably want a seat on the board and definitely a say in how you spend their money. Be prepared for this – not only do they need to protect their investment but they also will have knowledge and experience that your company will greatly benefit from. Being able to answer angel questions without feeling threatened is crucial to building a professional and mutually profitable relationship. Knowledgeable angels with good connections can jump start a company and keep it thriving. Well-connected angels can even make it easier to get additional rounds of financing including venture capital.
Professionalism Persistence and Patience: Raising capital is a time-consuming, ego-challenging process. It is not unusual for a startup entrepreneur to spend 50%-70% of his time raising capital from angel investors, a process that can average 3-6 months and in an uncertain market, it take even longer. Efforts to horde stock, inflate valuations or produce unbelievable financials will make the company less attractive to suitors. Let experienced professionals – produce your financials and manage your legal activities.
Lastly entrepreneurs must be determined, passionate about their business and thick-skinned. Remember this and good luck.
Lee Lister writes as The Biz Guru, for a number of web sites where she provides advice to the business entrepreneur. She is a published author of Entrepreneur’s Apprentice and How Much Does It Cost To Start A Business? If you require assistance in setting up your business and writing your business plan then visit www.BusinessPlanNow.com