Most small businesses can be financed by numerous sources, including personal funding, financial support from family and friends,
and bank loans. Despite all of the capital resources
available, it is a well-known fact that financial institutions make it quite difficult
for new entrepreneurs to borrow money, especially since many new companies have
not yet established a strong record of success. An angel investor makes it possible
for young companies to obtain the needed startup
capital when other traditional means of financing are not enough. Since
many angel investors do not require monthly repayment terms, they can also benefit
those who cannot afford monthly payments on traditional loans. Angel investors can
actively help entrepreneurs who seek capital for their small businesses so their
start-ups, expansions, and innovative ideas can become a reality.
Typical profile for an angel investor
The typical
angel investor is a retired entrepreneur or business executive with
a passion for investing. Their strong enthusiasm for the job allows them to look
beyond the monetary aspects of an investment. They enjoy using their experience
for the prospect of economic growth and in helping other entrepreneurs obtain success
in their ventures through mentoring. They are often college educated, invest in
groups (angel networks), and make an average of one investment every two years.
The typical investment of an
angel investor ranges from $10,000 to $250,000; however,
they are known for investing up to $1.5 million dollars in any given venture.
Angel investor expectations
Unlike
venture capitalists, angel investors typically do not want a large amount
of control in the companies that they invest in. Instead, they desire a large return
on investments throughout the course of several years. They believe that a higher
rate of return will compensate for the amount of risk in a given business endeavor
(at least 25% ROI), and often seek some sort of active role in managing the company.
One positive aspect of angel investors is that they can provide capital for small business startups that are well under
$500,000 (the minimum amount of funding that venture capitalists provide). Angel funding is definitely a clever alternative to consider
for small to medium-sized businesses that seek business capital but do not want
to give up too much stake in their company.
Angel investors in America
It is estimated that approximately one-seventh of all startups in the United States
receive some sort of funding from angel investors.
According to the Center for Venture Research, there are currently 220,000+ active
angel investors in the U.S. who typically provide an average of $150,000 for each
business opportunity.
It is also important to note that experienced entrepreneurs and accredited angel
investors are joining together to form groups and networks. Rather than the traditional
single benefactor of the 1970s, it has become increasingly common for angel investors
to operate as part of an angel syndicate or confederacy (a
group of angel investors). The benefit of having angel networks is that
each member is able to raise their potential investment level appropriately. Angel
networks are generally local organizations made up of 10 to 150 accredited investors
interested in early-stage investing. In 1996, there were about 10 angel groups in
the U.S. Since then, the number of angel groups has steadily increased and account
for more than 250.
The advantage of angel networks
As with any business endeavor, angel investors can greatly benefit from the formation
of networks. As a group, they are able to designate specific tasks to each other.
A select few can examine hundreds of business plans while others can present their
findings to other group members. Since each group member has a common goal of pooling
their funds together, they can collaboratively make larger investments. Each member
can also have the opportunity to invest
in multiple business endeavors since their contribution as a single member of a
group is significantly less than if they were to be the sole provider of an investment.
Many angel partnerships are willing to accept executive summaries or
business plans
by e-mail, while other groups prefer entrepreneurs to fill out a template on their
website. If there are prospective business endeavors of interest, an angel network
screening committee will select this group of businesses for further investigation.
Of those choices, only a few will be invited to present before the entire angel
group.
Other angel investor trends
Since angel investors have emerged in the 1980s, not only have they progressed into
syndicates but they have also increased their investment amount. Angel investors
typically invested anywhere from $10,000 to $150,000 per business venture. Today,
each angel investment is more along the lines of $500,000 up to over $1 million,
an amount that is very similar to venture capital
funding. This new reality should encourage entrepreneurs to approach angel
investors the same way they would approach venture capitalists.
This means that small business owners who seek angel capital should be prepared
to provide a detailed presentation of their business venture’s opportunities and
risks. Supporting documentation, such as a summary of their business proposal, financial
predictions, and background information of partners, advisors, and members of the
management team, should be presented to the angel network. In addition, entrepreneurs
who are able to successfully attract an
angel investorâs attention should have their
attorneys explain and negotiate the deal so there are no legal misunderstandings
in the business arrangement.
Conclusion
In the past several years there have been different growing trends of angel investors.
Since their solo days in the 1970s, there has been the gradual formation of angel
groups in order to collectively pool resources and expertise together. There have
also been more investments in the fields of technology, media and entertainment,
and the rise of many women-led ventures in the United States.
In todayâs technologically adept society, the Internet has made it possible for
entrepreneurs to network with other investors worldwide. This once local occurrence
has now reached global recognition, where many small business owners who seek funding
can post their business proposals online for potential investors. Likewise, angel
investors can actively search for prospective business opportunities. Websites such
as Go4Funding.com can unite online communities from around the world and connect
investors and entrepreneurs through profile matching and online networking.
Go4Funding
Go4funding.com is a fast and effective way
of locating the capital entrepreneurs need. Entrepreneurs will be given access to
thousands of potential investors around the globe, increasing their chance of raising
capital for their start-up. Investors can also use this online platform to target
specific business proposals. Go4Funding.com can benefit the
entrepreneurs and investors
by providing an online centralized network so both parties can successfully exchange
ideas, advertise, and obtain online support through forums and educational materials.