What is an Angel?
An angel is an informal investor who supplies young start ups or entrepreneurs with financial capital. Typically, angels invest their own funds unlike venture capitalists, which are part of a professionally managed fund. However, nowadays a growing number of angels are organizing into groups called angel networks, which are similar to venture funds’ construction but usually smaller in capital. An angel’s investment can range from a one-time seed money boost to ongoing support. In fact, reports by the Harvard Report shows angel funded companies are more likely to succeed than companies that use other types of funding. Angel investors usually ask for convertible debt or equity in return for their investment, which parallels their aim and commitment to helping the business succeed in the long run.
Since angel investors come in closer to the bottom level, they have a greater risk of dilution from future investors as well as greater risk of losing their investment due to the company failing. Therefore, angels require investments that will yield at least ten times their investment over five years through a planned exit strategy or liquidity event.
When is the right time for an Angel?
The first source of start-up finding is usually friends and family. Somewhere in between the first stage of investment and venture capital funding, which is typically no less than $1-2 million, entrepreneurs seek angels. Angel investors’ individual investments are more in the area of $250 thousand or less.
Beginning looking for money when the company needs funding is never the right time. Securing capital is easiest when the business is doing its best. As a result, for angel funding, start looking once the friends-and-family money has begun to run out, and the company needs additional financial capital to continue running.
How to find them?
There are several places and ways to look for helpful angels. Some of the methods and places include: personal networking, get the angels involved, an archangel, and national databases.
Personal Networking
Start by looking close to home. Exhaust known contacts before reaching out to angel groups and larger organizations. Potential investors tend to lend to businesses they can ‘touch and feel’ rather than companies that they cannot personally scrutinize. The more close contact an investor has with the potential investment firm’s owners and managers, the more likely the angels will be to invest.
Get the Angels Involved
By asking an angel investor to become personally involved in the company through a board member or advisory role, they will feel more comfortable and in-tune with the company’s day-to-day operations. When the investor becomes personally involved, he feels that he can have some control over the destiny of his money; thus, making his more likely to put up his money.
An Archangel
Angel groups are a great place to look for funding because they have the capability to invest more funding than a single angel. One way to gain an edge in attracting an angel group is to gain the confidence of one or two members of the angel group before pitching the whole group. An ally on the inside, an archangel, may be able to positively influence funding because the decision to fund is usually decided by members’ votes.
National Databases
Another option is to submit the target company’s profile and application to one of the national angel databases. The two largest in North America are AngelSoft and the National Angel Capital Association. The online networks have agreements with hundreds of local angel groups around the continent that could help.
Summary
Whichever method is used to find and secure angel funding, remember that once angels do invest, treating them properly is key. On another note, receiving angel investing is a serious step in the business growth model, so be careful and have fun searching.
Sources
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