Angel investors operate with a similar investment profile to venture capitalists, also seeking to realise large returns from a few companies in a portfolio of investments. Angel investors typically have more flexibility than venture capitalists because they are investing their own money. They are not under as much pressure to exit from an investment in a new venture within a specified time frame.
Originally a term used to describe investors in Broadway shows, “angel” now refers to anyone who invests his or her money in an entrepreneurial company. Institutional venture capitalists invest other people’s money. Angel investing has soared in recent years as a growing number of individuals seek better returns on their money than they can get from traditional investment vehicles.
Angels come in two varieties: those you know and those you don’t know. They may include professionals such as doctors and lawyers; business associates such as executives, suppliers and customers; and even other entrepreneurs. Unlike venture capitalists and bankers, many angels are not motivated solely by profit. Particularly if your angel is a current or former entrepreneur, he or she may be motivated as much by the enjoyment of helping a young business succeed as by the money he or she stands to gain. Angels are more likely than venture capitalists to be persuaded by an entrepreneur’s drive to succeed, persistence and mental discipline.??
Angel investors vary widely, but they are typically willing to accept risk and demand little or no control in return for owning a piece of a business that may be valuable some day.? Angels can be classified into two groups: affiliated and non-affiliated. An affiliated angel is someone who has some sort of contact with you or your business but is not necessarily related to or acquainted with you. A non-affiliated angel has no connection with either you or your business. ?It makes sense to start your investor search by seeking an affiliated angel since he or she is already familiar with you or your business and has a vested interest in the relationship.
Affiliated Angel Category:
Begin by jotting down names of people who might fit the category of affiliated angel:
These include professional providers of services you now use – doctors, dentists, lawyers, accountants and so on. You know these people, so an appointment should be easy to arrange. Professionals usually have discretionary income available to invest in outside projects, and if they’re not interested, they may be able to recommend a colleague who is.
2. Business Associates.
These are people you come in contact with during the normal course of your business day. They can be divided into four subgroups:
- Suppliers/vendors. The owners of companies who supply your inventory and other needs have a vital interest in your company’s success and make excellent angels. A supplier’s investment may not come in the form of cash but in the form of better payment terms or cheaper prices. Suppliers might even use their credit to help you get a loan.
- Customers. These are especially good contacts if they use your product or service to make or sell their own goods.
- Employees. Some of your key employees may be sitting on unused equity in their homes that would make excellent collateral for a business loan to your business. There is no greater incentive to an employee than to share in ownership.
- Competitors. These include owners of similar companies you don’t directly compete with. If a competitor is doing business in another part of the country and doesn’t infringe on your territory, he or she may have capital and information to share.
Non-Affiliated Angel Category:
This group can include lawyers, accountants, consultants and brokers whom you don’t know personally or do business with?
2. Middle Managers.
Angels in middle management positions start investing in small businesses for two major reasons – either they are bored with their jobs and are looking for outside interests, or they are nearing retirement and fear they’re being phased out?
These angels are (or have been) successful in their own businesses and like investing in other entrepreneurial ventures. Entrepreneurs who are familiar with your industry make excellent investors.
To look for non-affiliated angels, try these proven methods:
- Business brokers
- Intermediaries (Firms that find angels for entrepreneurial companies. Ask your lawyer or accountant for a reputable firm)
Angels tend to find most of their investment opportunities through friends and business associates, so whatever method you use to search for angels, it’s also important to spread the word. Tell your advisors and people you meet at networking events, or anyone who could be a good source of referrals.