Angel investors are individual investors that look for companies that exhibit high-growth prospects, have a synergy with their own business or compete in an industry in which they have succeeded.
They’re investing their own money. That’s worth repeating: they’re investing their own money. This means that its personal and makes the angel investor idiosyncratic – and potentially a management challenge for the entrepreneur.
They’re usually successful executives who have an interest in investing in businesses where they believe they can add value through their individual expertise or through their network of connections.
In addition to cash, a good angel investor brings gravitas to a business because he/she will be recgonised in the industry and therefore can open doors, facilitate introductions to potential customers, distributors and funders. In addition the angel’s experience can be leveraged in all sorts of other ways ranging from helping identify staff to providing a sounding board for ideas and plans.
Return on investment
While angel investors typically help company grow in a more hands-on way, their primary motivation is a return on their investment. Companies courting angels must be able to show this return.
A cash or “liquid” return is usually achieved by selling the business or taking the business public and allowing the investor’s shares to become tradable.
These individual angels seem like they’re from heaven, but be prepared to give up a chunk of your company for funding. Companies seeking equity capital from angel investors must welcome the outside ownership and perhaps be willing to relinquish some control. In addition capital from angel investors is likely to cost no less than 10 percent of a company’s equity and, for early-stage companies, perhaps more, a lot more. In addition, many angel investors charge a management fee in the form of a monthly retainer.
Here are action steps you can take to find angel investors:
- Ask your accountant. If your accountant doesn’t know, call a big firm and ask for the partner who handles entrepreneurial services. Ask him or her to point you in the right direction.
- Ask your solicitor. Lawyers always know who has money.
- Call a professional venture capitalist and ask if he or she is aware of an angel investor.
- Contact a local or national government economic development agencies: ask if anyone there knows of an angel investor.
- Call the editor of a local business publication and ask if he or she knows of any. These professionals often write about such activity.
- Call the director of a trade association you belong to. Ask if there are any investors who specialize in your industry.
- Ask your banker.