Loans for Start Up Business

Angel Investors, Who are they and What can they do for your business

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

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.In order to secure early-stage financing, you may be asked to relinquish some control or ownership of your company. Furthermore, as with venture capitalists, you need to provide these early-stage investors with a viable exit strategy.

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.
• Angel investor organizations—groups of angel investors who invest in deals individually or as a group.
• Business incubators these are organizations that offer young companies a plat form to grow by providing information, rental space and infrastructure. Incubators can also offer access to angel investors. Check the National Business Incubation Association www.nbia.org

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