Angel investors can provide you with much-needed capital for your startup business. They are one of the startup funding options you have, along with using your own savings, borrowing money from family and friends, and securing a loan from a bank. In return for their money, angel investors will want equity capital, that is ownership interest in your company, such as stocks.
Don’t expect an angel investor to be as enthusiastic about your startup as you are. On the contrary, angel investors tend to do a lot of research and require a solid business plan with accurate projections, as well as an agreeable exit plan.
The Benefits of Working with Angel Investors
The funding is obviously the main benefit. Many angel investors are expert investors with a large portfolio and plenty of cash, and if they deem your startup a promising investment, they can offer you all the funding you need, without demanding interest in return. Angel investors have played an important part in helping to launch big companies over the years, like Google.
Another great benefit of attracting angel investors is the expertise they can bring to your business – many of them will act as advisers, offering you practical business tips they’ve learned after years of investing in your market. Their advice can be invaluable if you regard yourself as a more creative and idealistic entrepreneur and need some practical, businesslike people around you. There are other benefits too.
The Disadvantages of Working with Angel Investors
Because angel investors request in return for their money stocks or some other form of equity ownership, and often a seat on the Board of Directors too, they usually end up taking an active role in running your company. This can decrease the control you have over your startup, and sometimes also force you to alter your mission or directions and settle for compromises to keep them satisfied.
But this doesn’t mean that all angel investors are greedy or domineering. The important thing is to find angel investors who can become your friends, even your mentors, and who are genuinely interested in helping your startup reach its potential.
Before You Search For Angel Investors
Before committing themselves to your business, angel investors will require proof that your startup has what it takes to make it. This proof includes a detailed and compelling business plan, accurate cash flow projections, credit profiles, financial history, and even bank statements and tax return information, all of which can assure them that you’re a low-risk investment. It’s wise to gather all that paperwork before you begin your search.
Finding Angel Investors
Your business connections can help you find angel investors. You can also use the web to find angel investor groups or networks, which can offer you more funding than one investor and have of course the benefit of shared expertise.
The crucial thing when looking for angel investors, whether you do it through your connections or online, is to find investors experienced in your market – many investors are or have been entrepreneurs – because they can offer more valuable advice, and also tend to be more genuinely interested in the market.
Image Credit: [Flickr/PunkJR]