Angel Investors - 10 Ways to Find
by Matt Berkley
How can small business owners/entrepreneurs find Angel investors? Here are a few suggestions:
1. Realize that angels will be hard to find. John Gatewood, local investor and president of The Gatewood Group, a financial planning firm explains, “For the most part, individuals and other investor groups are not known. Private investors tend to keep their identities hidden or keep a low profile. Without this ‘veil of privacy’ they will become targets of endless numbers of entrepreneurs hoping to gain access to those people.”
Finding An Angel?
On average, angels are 47 years old, have a postgraduate degree and management experience in an entrepreneurial venture.
What Do Angels Do?
* Angels seek investment opportunities in a company with high-growth potential, proven management and a business plan that includes information about the company, its management team and its markets that will enable the assessments of potential value.
* Angels seek above-average returns.
* Angels invest in companies seeking between $50,000 and $1 million.
* They prefer to finance manufacturing or product-oriented ventures, especially in the high-technology fields.
Source: Missouri Venture Forum, “Valuing And Structuring Seed-To-Early Stage Businesses” seminar.
2. Time is a factor. Far too many entrepreneurs go shopping for investors when they shouldn’t. “This takes a lot of time and energy away from growing your business and finding customers, make sure you do it at the right time in your business and don’t start too early,” says Barry Moltz, co-founder of Illinois-based Prairie Angels and an advisory board member of the national Angel Capital Association.
3. Exhaust all other options first. When looking for private funding, a business owner should first evaluate his or her personal and business contacts to see whether there is someone in those groups that has the funds needed to start the venture, says Gatewood. “Seeking capital from strangers is incredibly difficult not only because there are very few people willing to risk their savings on startup ventures, but also because there is no prior personal relationship between the business owner and the angel investor.”
4. Start networking. Business owners should find ways to be introduced to potential investors via a referral. In most cases, angels are investing in you more so than your proposal. In all the years Gatewood has spent as a private investor, every deal came through a personal reference. Why is the reference so critical? Gatewood believes that businesses are made or broken by the quality of their leaders. “The wrong person will ruin a great idea. The right person can oftentimes take a lukewarm idea and somehow make it. Most of the opportunities I have invested in that have failed, did so because the wrong people were leading the charge.”
5. Search online. The Internet has made angels and investment groups much more accessible than in years past. Robert Calcaterra, president of the St. Louis Arch Angels, believes his organization brings a meaningful change in that using its website—www.stlarchangels.com—makes it easier to sign up and get ideas looked at by a viable angel group.
6. Find an investor who has worked within your specific industry. According to Moltz, “The best thing is for someone to bring more than money. It’s really great if you can find angels who have experience in your area. That’s a huge advantage. Not only does it bring money, but it can bring important things like access to distribution.”
7. Make sure your angel has enough money. Gatewood stresses that investors need to have the ability to invest initially and still have the resources to provide “follow-up” capital. “There is capital needed at the business startup, but there is other capital that will be needed as the business expands and grows. The worst thing would be to have an investor who funds the initial round, but is unable to put in additional capital once certain milestones have been achieved and more funding is needed to keep going.”
8. Know what angels are looking for. Calcaterra says, “Just like an institutional investor, they are looking for great management, a viable business model, a reasonable valuation for the business and an exit strategy for them to cash out eventually. It doesn’t work if the founder is overly protective of his idea and obsessed with control of the company, or if the business opportunity is hard to assess and convoluted.”
9. Know your competitors. Don’t tell investors you’re the only game in town. Healthy competition isn’t a bad thing.
10. Keep it simple. Calcaterra points out that overselling an idea is normally a quick way to not receive interest. He says, “An angel is going to want to hear a candid discussion of the opportunity with all of the primary issues associated with it. The business owner also cannot be close-minded and not open to discussing many different ideas and approaches to investment and business strategies.”
See the second part of the story here…Angel Investors - Advice From Both Sides
Wesley Hein at LifeTwo has a great article on funding your start-up to include VC and Angel Investors - Middle Age Entrepreneurs Need Not Apply: Silicon Valley does not want you
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