How To Find Angel Investors For Your Small Business

How To Find Angel Investors For Your Small Business
Photo Credit: FreshBooks

If you haven’t been able to get money for your most recent business venture, an angel investor might be the answer. Generally, angel investors help small business owners and entrepreneurs with money during the start-up phase and beyond. But how do you go about finding an investor for your company? Well, don’t panic. This article will provide the right information you need to find angel investors and get them interested in your small business.

What Are Angel Investors?

Angel investors are high-net-worth individuals who give money to businesses that want to start up in exchange for a piece of the business, usually in the form of stock or royalties.

These individuals search for start-up companies and fresh ventures they believe will succeed in the long run.

Even though the amount varies from year to year, angel investors put about $25 billion into 70,000 businesses as recently as 2017.

Benefits of Angel Investors

  • No responsibilities: Business owners don’t owe the angel backer anything back if their company fails because they haven’t requested a fresh line of credit and because the majority of angel financing involves stock deals.
  • Half the time, angel investors are also business owners but with a wealth of experience. Entrepreneurial expertise and experience are frequently in great supply among angel investors. Garett Polanco, a certified angel investor who has backed 29 businesses, thinks that financial supporters who have built successful firms on their own are particularly beneficial.

How Angel Investors Operate

The steps in the actual investment procedure are as follows:

  • Angel investors find start-up companies to invest in through word-of-mouth, business and industry seminars or conferences, recommendations from professional investment organizations, internet business forums, or regional events.
  • If there is shared interest, the angel investor will interview the startup’s founders, go over business investment paperwork, and assess the industry the business is targeting.
  • A term sheet or contract is created once you have reached a verbal agreement between angel investors. It includes terms for the investment, payouts or equity percentages, investor rights and protections, governance and control parameters, and an eventual exit strategy for the angel investor.
  • When the contract is complete, a real legal contract is made and signed, marking the official completion of the transaction and the release of the invested cash for use by the business.

How To Find Angel Investors

The following are practical steps to take as small businesses that need to find and attract angel investors.

#1. Proper Pitch Making

If you tailor your pitch properly, you will have a much better chance of getting the angel investor you need. In general, investors need to know how your business works, how it meets a need that hasn’t been met yet, if there is room for growth, and whether or not they trust your leadership team.

Your proposal should also have financial information, an analysis of the competition, and information about the market and any legal issues.

#2. Take a look around you

Many angel investors desire to participate actively in the firms they invest in. Hence, they choose local businesses. Angel investors who put money into small local businesses get tax breaks from many state and local governments, including Delaware.

So, looking for a local angel investor could be the first step toward finding the right investment match.

#3. Utilize every chance you get to network

You need to be directed toward an angel investor, in most circumstances. Consequently, in order to discover angel investors, you must get to know the proper person (the one who can suggest you to the angel investor you’re looking for), which requires getting involved in your neighborhood’s business and social scene.

#4. Understand That Most Angels Don’t Fly Alone

While some angel investors operate on their own, the majority form a syndicate or informal network where they can pool their funds and spread the risks.

Consult your local economic development center, community futures office, or business development center. There might be a thriving community of angel investors in your area.

#5. Look for a good angel investor by contacting sector organizations and online communities.

Start with one of these two angel networks:

Association for Angel Capital (ACA):

With more than 14,000 private supporters, over 250 angel gatherings, and authorized stages, the ACA is the greatest professional development association for angels on a global scale.

The ACA is active in the Middle East, South America, Canada, and the United States.

Forum for Angel Messenger (AMF):

The AMF can introduce new businesses to pre-screened individual and corporate angel backers who can provide equity financing of $100,000 to $1 million.

Social networking is an additional resource for small enterprises looking for angel investment. Use the search function on LinkedIn, in particular, to identify angel investors active in your neighborhood.

Venture Capitalists vs Angel Investors

While both angel investors and venture capitalists (VC) provide funding for businesses in exchange for a share of the profits, there are important distinctions between the two types of investors. Both have a tendency to invest in startups, but usually, they participate in various stages of the startup’s life. The following are major differences between a venture capitalist and an angel investor.

  • Angel investors give money to businesses just starting out, while venture capitalists step in once the business has made some progress in the market.
  • Angel investors usually put their own money into the business, but venture capitalists put together money from other places.
  • The likelihood of an angel investor funding an idea is higher than that of most venture capitalists, who prefer to see a proof of concept.
  • The source of the funds is another distinction. Angel investors are individual investors who use their own funds. Managers of venture capital funds invest both their own money and that of other investors in addition to their own.
  • Individual angel investors usually write checks that are a lot smaller than the checks that venture capitalists write, which are often for $2 million or more. These checks typically range in value from $10,000 to $100,000.
  • Angel investors have a higher propensity to maintain a “hands-off” approach to firm involvement. Venture investors, on the other hand, usually join a company’s board of directors and are involved in how it runs.

Angel Investors for Startups

#1. The Family Investor

A desire to help a friend or family member motivates the family investor, who is more like a supportive family member who knows you than a typical angel investor. They trust you, which is the main premise for their investment.

#2. The relationship Investor

A former coworker from your previous employer or a long-time business acquaintance is the relationship investor. This investor has a history of dealing with you and may or may not comprehend what your new business is doing. On the one hand, they want to be helpful, but they also want something in return.

#3. The Idea Investor

The idea investor is probably familiar with the market your company is targeting. This type of angel investor is perhaps the most beneficial because it can help you validate your idea to some extent.

There is minimal emotion present at the table because their investment is focused on the concept (always a good thing). They can open doors to partner connections and offer sound counsel if you can get them on board.

You will spend the majority of your time persuading the Idea Investor that you and your team are the best candidates to tackle the issue.

#4. The Investor who was once distant

With either the relationship investor or the idea investor, the once-removed investor is probably associated with a personal or professional connection. Most likely, they don’t know you and don’t know what’s good or bad about your idea. They have faith that someone else will introduce them to profitable investing prospects.

#5. The Archangel Investor

An Archangel is a relationship investor or idea investor with a track record of producing money for other angels (and possibly non-angels) as well.

They know a lot of other angel investors or have built a successful business in the same field. These people are priceless because of their ability to wield significant power and attract reputable once-removed investors.

How Do Angel Investors Get Paid Back?

An angel investor frequently anticipates a 30% return on their investment. As part of their exit strategy, angel investors will have a return on investment expectation in mind. In order to recover their initial investment and any earnings, they now sell their firm equity.

How Much Do You Pay an Investor?

The normal return that angel investors demand on the money they invest in your business is between 20 and 25 percent. In order to make up for the high risk they are taking, venture capitalists may take even more. For instance, if the product is still in development, an investor might want 40% of the company.

Is Angel Investing a Good Idea?

It’s not for everyone, but if you want to invest a modest portion of your money, it’s an appealing option.

What Is The Risk of Working With Angel Investors

An angel investor’s higher expectations usually come at the expense of their higher risk tolerance. They are in business to make money, and when a sizeable sum of money is at stake, they will want to see a reward just like everyone else does.

How many angel investors exist in the United States?

According to the most accurate figures, approximately 300,000 people invested as angels over the past two years. Based on a net worth of $1 million or more, 4 million additional people could decide to become angel investors.

Is investing in angels risky?

Yes. According to one academic research of American angel investments, 52 percent of the deals in which angels invested resulted in a loss of some or all of their investment capital due to the failure of the firms. For a return on their investment, the savviest angel investors make at least ten investments, relying on one or two to cover nearly all of their costs.

Conclusion

Angel investors are the best fund-seeking approach for small businesses in need. This article has explained how you can find angel investors.

How to Find Angel Investors: References

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