For starting any business, the primary need is capital. For capital the only source is finding angel investors. But finding an angel investor is not a simple thing like to finding the pearl in sea.
Here some clues for finding Angel investors
Angel investors are usually high net worth individuals and “cashed out” entrepreneurs who are interested in mentoring other entrepreneurs and sometimes get actively engaged in the businesses they back. Angels draw an estimated $25 billion into tens of thousands of startups annually. In the past, angel investors have typically operated solo. But in a new trend, angel investors are forming groups to pool resources and expertise, generate deal flow and create a formal screening process to pinpoint promising prospects. Here are 3 must know tips about finding and approaching angel investors, from the non-profit Angel Capital Education Foundation:
1. Angel investors are not venture capitalists. Angels invest their own personal funds in a business. Venture Capitalists money usually comes from institutional sources. Angels also back startup and early-stage businesses, while venture capitalists prefer later stage companies. Individual angels invest $5,000 to $100,000, while Venture Capitalist investments go $2 million and up.
2. To attract angel interest, be willing to give up some ownership or control of your business, and be able to show a significant return within 3-7 years, as well as a profitable exit strategy.
3. Seek angel investor funding when:
a) your product is fully developed;
b) you have already invested your own money and exhausted other alternatives (like family and friends);
c) you have existing or confirmed potential customers;
d) you can demonstrate that the business is likely to grow fast and can pass $10 million in revenues within 3-5 years.
Angel investors come in many forms, but generally share these traits: members help screen companies and commit to a certain amount of investments yearly. Groups meet regularly (often monthly) to hear investor presentations. Member’s angels decide individually whether to invest in a business or not. Members work jointly to validate plans, statements and entrepreneur backgrounds. While angel group sizes vary widely, the median pooled investment per round is around $400,000. Some groups focus on specific areas, such as technology, but most are open to a variety of industry sectors, including software, medical devices, services and manufacturing. Angel investors typically look for a management team with proven skills and experience; a unique product or service with a competitive edge, large market and a clear, workable plan; evidence that you have invested substantially yourself; potential for a strong return.
Know who you are looking for.
For connecting with the angel investor, it will be much better if you keep this profile of the “typical” angel investor in mind.
According to Ralph Kroman of WeirFoulds LLP, who is a typical angel investor:
- Has an income that exceeds $100,000
- Is 40 to 60 years old
- Has a net worth in excess of $1,000,000
- Has previous successful entrepreneurial experience
- Expects to hold on the investment for up to five to seven years (although some angels wish to "cash out" after only a few years)
- Enjoys advising the entrepreneur and likes to be part of the action
- Invests up to $150,000 but may participate in a syndicate of other angel investors bringing the total investment to multiples of individual investments
- Refers deals to other private investors even if the angel has chosen not to invest
- Likes to invest in an industry with which the angel is familiar
- Sources deals through referrals.
Angels look for companies with growth and export potential says Allan Riding (expert on angel investing and professor at Carleton University). They understand that it may take several years before their investment will pay off – even though they also expect to be well improving for their risk.
Look close to home.
Because so many angel investors like to play an active role in the business they invest in, they prefer to invest in businesses that are close to home. "An angel wants to be nearby so they can drive over to talk to the principals," says Jim Orgill (managing director of advanced technologies for the Business Development Bank of Canada).
Network, network, network.
In most of the cases, you need to hand over to an angel investor. They are not hanging out on the street waiting to talk to whoever comes by. So to find an angel investor you need to get to know the right person which means dip yourself in your local business and social community.
Focus on business owners as these are the people who might be or become angel investors themselves or know an angel investor. Join business and trade organizations and regularly attend the meetings. Joining civic and community organizations are also great for networking. Attend trade fairs and events. Get your face and your name out there and meet as many people as possible.
Realize that many angels don’t fly solo.
While there are some angel investors who invest entirely on their own, many operate as part of an informal network where they can pool their resources and share the risks.
Check with the Community Futures Office or Economic Development Centre where you live; there may be an active group of angel investors in your community.
Use the connection services available on the Internet.
You may be able to grab up with an angel investor through one of the web sites that provides entrepreneur and angel investor matching. If nothing else, you can at least get your business proposal before a wider audience.
Try out the following:
Capital Connection
- This is a network of local databases which contains business projects and venture capital sources. Registration of business projects and private venture capital investors is free, but you must be validated by a local economic development organization that has been certified.Canadian Angel Investment Network
– This is a service to connect entrepreneurs with angel investors. Posting your confidential proposal is free; if their matching service finds an investor who desires to pursue your opportunity further, you pay a modest one time, first contact is fee.The BC Angel Forum
- Technology and non technology pre-screened companies seeking out lay financing of $100,000 to $1 million, deliver "live" presentations to pre-screened private and corporate investors.
Finding an angel investor is not an usually easy task, but the effort will pay off when you find the angel investor who is willing to invest in your business. Besides providing the capital your business needs, the advice and know-how of an angel investor can be key to shaping your company’s success.
