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May 30, 2009
Seven Keys Every Entrepreneur Must Know About Business Angels When Seeking Private Investment
If you are looking for money to start or fund a business, one of the options open to you is finding angel investors. The difference between venture capitalists and angel investors is straight forward: a venture capitalist is a professional supplier of business capital, whereas an angel investor is much more likely to be a private individual interested in backing one or more specific business start-ups. Here are some tips to make sure you find yourself in the company of good angels:
Make sure they can afford it
You should never allow an angel investor to back your business if you aren't certain that they are rich enough to never get a penny back. This is for both moral and legal reasons. Moral, because so many new start-ups fail and you don't want the investor's losses on your conscience. Legal, because there are laws against persuading little old ladies to give you their savings.
Make sure they are sophisticated investors
What you really want is an angel investor who has knowledge and expertise in your industry. Yes, you want their money... but you also want their experience, contacts and expertise. Also, if you want to raise venture capital later on, it will be much harder if you show up with a long list of unsophisticated investors.
Don't think it will be any easier
Raising money from angel investors is no easier than raising it from venture capitalists. They care as much about liquidity as venture capitalists do – maybe even more because they are investing their personal, after-tax money.
Understand their motivation
Angel investors differ from venture capitalists because, typically, angel investors have a double bottom line. Usually, they are successful entrepreneurs who have made it and now want to pay back society by helping the next generation of business people. Thus, they are often willing to invest in less proven, riskier deals to help entrepreneurs get started.
Help them to live vicariously
One of the rewards of angel investing is the ability to live vicariously through an entrepreneur's efforts. Angels want to relive the thrills of entrepreneurship while avoiding the firing line. They enjoy helping you, so seek their guidance frequently.
Make your pitch is understandable to the angel's spouse
The usual membership of an angel's investment committee consists of one person: a spouse. So, if you've got a complicated product, make sure it's comprehensible to the angel's husband or wife.
Be nice
More often than venture capitalists, angel investors fall in love with entrepreneurs. The entrepreneurs may remind the investors of their sons or daughters, or even fill the position of the sons or daughters they never had. If you are seeking angel capital, then you're probably not a proven moneymaker, so you can't get away with acting like an idiot. Be nice until you're proven – although you should really be nice even when you are proven.
Posted by David at May 30, 2009 10:04 PM
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