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Understanding angel investors
Finding investors to help your start-up is critical to the success of your business. Angel investors can be your biggest ally when you are looking for financing. Angel investors are normally entrepreneurs that have achieved success and are willing to invest a great deal of money into your start-up to watch it become successful. Some angel investors will work with a small group while others prefer to invest alone. When an angel investors pools their money with others, it is called an "angel fund." Each investor will meet with the group and take a vote on the start-ups they want to invest in.
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Angel funds can benefit a start-up that needs more than $50,000 to get their business off the ground. Most individual investors do not invest more than $50,000 individually so this gives the entrepreneur a chance to raise over $2 million for their start-up (depending upon how many angel investors are in the fund).
If you want to receive angel funding, you need to have been in business for at least 2 years. Angel investors typically are not interested in companies that are just starting out, they want a company that has already been established and has some financial documentation to support their claims. Angel investors look for the following things:
- A company with a management team
- Letters of intent from other successful individuals that are waiting to come aboard
- Customers that have expressed an interest in buying the products or services
Angel investing is a risky business so most investors will not consider investing money into a company that does not have a strong growth potential. They want to make sure you can easily net over $30 million dollars at some point or else the investment is not worth it.
Nine out of ten investments made by angel investors will fail, which is why they are very picky about the start-ups they choose. The investors do make a nice return, normally 30 percent or more on the companies that succeed so this is why many of them continue to do it despite the failures.
If you feel that your business meets all the qualifications of angel investors, you need to invest some time finding them. There are several angel networks out there and you can find them right off the internet. Check web sites that deal with issues in your industry, chances are you will find links to some angel network web sites. Do some local searches to find angel networks because most angel investors prefer to invest in local companies. The other reason for this is because you can easily travel to their headquarters to pitch your company to them.
Another way to find angel investors is through your network of contacts. Speak to community leaders and ask them if they know of anyone willing to invest in start-ups. It is normally pretty easy to find angel investors once you know where to look.
Each angel network has a process in which they do things. Make sure you completely understand their process before you start pitching your business to them. They typically have each start-up fill out an application and then they will go through a pre-screening process. The pre-screening process will take around 2 weeks to complete so you need to be patient. After the pre-screening process, you will go through an official screening process. During this time you may meet with some of the angel investors. The official screening process will take about 3 weeks to complete. The next step is to go through the due diligence phase. This is when angel investors will speak to specialists in the industry about your company. They will need to validate your business plan before they call you in for the official investment meeting. At the investment meeting, you can officially make your pitch to all the angel investors and answer all of their questions. Finally, they will determine if your start-up qualifies for funding. The entire process can easily take 6 months or longer to complete.
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