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Finding Angel Investors for your business

Angel Investors

Another source of capital are angel investors. These are high-net-worth individuals who invest in early-stage companies. They are usually former entrepreneurs who are now looking to invest as well as provide their expertise. Venture capitalists and angels are similar in many ways, with the notable exception that the latter has disposable capital and available resources. Expect to raise capital from an angel investor of anywhere from $20,000 to $250,000.

Good angels have the following traits: They have funded companies before and they have good contacts and industry and entrepreneurial experience. It is easier to work with a seasoned angel investor than with a novice. 

Family members and friends can also be angel investors. Your dentist, doctor, financial advisor, or a friend who inherited money are all possible angel investors who might be interested in investing in your business. With certain types of angel investors, it is important that your business is impressive. A wealthy, amateur investor will be more interested in investing in a high-end hair salon or restaurant than in a medical claims office or other less-impressive business. This is mostly because, for an angel, it is not always about making more money but about the prestige of owning part of an interesting business.

Use of Angel Funds

  • Early-stage financing
  • Bridge Financing
    • -Establishing a marketing program for an existing product or service
    • -Increasing working capital (due to incrementing sales)

Issues with Angel Financing

  • Capital investment from angels is expensive. The investor may require 10% to more than 50% of the company’s equity. The amount of equity handed over to the investor will depend on negotiations.
  • Investors may charge monthly management fees on top of the equity in the form of a retainer.
  • Angels do not usually invest as a group and will demand different terms for their investments, making negotiations difficult.

Where to Find Angels

  • Government or state agencies, Small Business Development Centers, the Small Business Administration, and regional economic development agencies may direct you to interested angel investors. The Active Capital website is a SBA initiative to connect entrepreneurs with investors.
  • Angel investor organizations, such as the Angel Capital Association — are groups of angel investors who invest in deals individually or as a group.
  • Business incubators, these are organizations that offer young companies a platform to grow by providing information, rental space and infrastructure. Incubators can also offer access to angel investors. Check the National Business Incubation Association (http://www.nbia.org)

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