Lots of early stage businesses are popping up these days. And for many entrepreneurs, finding an angel investor is an important part of the growth of the company. After all, angel investors can be very valuable, both for their money and expertise. With these considerations in mind, here are six things to think about to help determine if an angel investor is in your future.
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Lots of early stage businesses are popping up these days. And for many entrepreneurs, finding an angel investor is an important part of the growth of the company. After all, angel investors can be very valuable, both for their money and expertise. With these considerations in mind, here are six things to think about to help determine if an angel investor is in your future.
1. Most angel investors are involved investors. These are usually high-net-worth individuals who have an interest or passion for a particular industry or type of business. They have had a successful past with similar businesses, and are looking to capitalize on their expertise and leverage their capital.
Entrepreneurs need to recognize this fact about angels, and understand that taking angel investment capital is akin to taking on a partner. An angel investor's capital buys them access and influence. The entrepreneur needs to be open to someone else influencing, and in some cases even making decisions in their business.
2. Angels look for uniqueness. They want to invest in someone and something that has a strong potential for significant growth. Leveraging capital in a high-risk investment means that the upside potential return, coupled with the strength of the management team, offer a strong possibility of significant double-digit returns in three to five years.
These types of returns come from companies that offer a unique value to a particular marketplace. The uniqueness can come from many different sources. What's important is that it is sustainable, and difficult to copy.
3. Angels are not crutches. If a business is in need of capital, and the reason behind this is poor practices on the part of the ownership and management team, the possibility of securing angel investment money is very slim.
Angel investors are not looking to invest in mistake-riddled environments. If you seek angel investment capital, make sure that your business operations and management practices are solid.
4. Angel investors also have their own unique place in the spectrum of capital sources. In the earliest stages, businesses are most often funded through the owner's own capital and the capital of friends and family. It is rare that an angel investor will put money into a pure startup.
The primary exception to this is if the business has a completely unique product that requires research and development. Intellectual property that you can patent in the form of a product can attract investment capital, particularly if you can substantiate the market potential for the product.
5. Entrepreneurs also need to recognize that securing angel investment is a time-consuming process. First and foremost, there needs to be a solid business plan that clearly and succinctly lays out the vision, goals and steps to be taken to turn ideas into reality. Supporting the business plan are financial projections backed by substantive market research, if not real live market data. Once the business plan and financial projections are solid, the business owner then needs to find the angel investor.
6. Be specific in how you go about searching for an investor. Ask your contacts in the accounting and legal professions. Ask other owners who have secured investment capital. Look for angel investment groups where the investors operate together to screen and analyze investment opportunities.
Bottom line — Angel investment capital is valuable for businesses on the verge of some strong growth potential tied to uniqueness. Recognize that it is a “partnership” in some ways, and the process of securing the investment capital can be long and very time consuming.
Ken Cook is the co-founder of How to Who, a program on how to build strong relationships and how to build business through those relationships. Learn more at www.howtowho.com.
