Angel Investors, Points to keep in Mind

Angel Investors 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 Capitalist 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. You can find these angels through networking, business groups, and investors’ associations.

Points to keep in mind:

Equity financing is expensive. You need to compensate your investors for the risks they take in your company. If your business is successful, your company will end up paying more for the equity invested than it would have with a loan.

Develop your business strategy. Your executive summary must clearly state what your business does and how you expect to make money. Investors will question your revenue projections and how you plan to achieve them, particularly in relationship to the current market environment, costs, distribution, and supply.

Strengthen your management team. Angels invest in a company’s management as well as the product or service. Think on any weaknesses that your team may have and look for people to join or mentor your company.

Consider your market. Angel Investors are looking for large markets with high compound rates of return and low penetration. If your business has an obscure market, the Angel Investors might not be able to predict the success of your business idea and will not feel comfortable investing.

Although a business plan helps you solidify your business idea and anticipate problems that you may encounter, it is also a marketing tool to obtain finance or strategic partners. Angel Investors invest in management as well as in ideas. Your job is to prove that you can make the idea work. Why would you expect somebody else to take the risk and invest in your company if you are not willing to do the same? You will be in a better position to seek financing if you have already invested in your business.