While many many options are available for funding a business in need of growth, actually landing that funding can be much more challenging for small business owners. In our continuing effort to better explain various sources of capital available to small business owners, we thought we’d look at Angel Funding, which is becoming an increasingly common form of capital for small business owners. In its strictest sense, an “angel” tends to be a high net-worth individual who quite literally writes a check to a start-up or small business in exchange for equity in the company.
Below we’ve compiled a list of the top ways to send you and your business in the right direction with the guidance of some divine sources.
Know your audience
So who is an angel exactly? Don’t feel out-of-the-know just because you’re thinking halos, wings and harpsichords.
An angel is a wealthy individual willing to invest in a company at its earlier stages in exchange for an ownership stake, often in the form of preferred stock or convertible debt. Colleen Debaise explains in her article, What’s an Angel Investor? that angels are considered one of the oldest sources of capital for start-up entrepreneurs.
Know your team
One of the first parts of your company angel investors will look at is yur management team, which is the heart of your start-up. Your team must have the muscle and ability to resolve conflict quickly and directly from day one. Be prepared to show your team’s track record of successes and challenges.
Angels want management they can trust, respect and ultimately like. How does an investor evaluate a start-up’s team? by Carlos Eduardo will help you ask yourself, “Does my team have the necessary experience it takes to deliver what we have set out to do?”
It’s not what you know, it’s who you know
Finding an angel is about using your contacts. Your mom said it. Your third grade teacher said it. That Hollywood agent said it…now we’re saying it. Have a little black book (or smartphone). Send out updates. Take friends to lunch. Take friends of friends to lunch. In one word: network.
Every person you encounter is a lead. Be genuine. Be ready. Jennifer Lawton has some great tips to help you find your angels in the outfield in Making Friends: The Name of the Angel Game.
Find an angel close to home
Think like an investor. Wouldn’t you want a comprehensive understanding in the company in which you are investing? Wouldn’t it be nice to jump in the car and have a chat with the company’s principles? Angel’s are people, not institutions, and they want to personally know the people they are investing in. In fact, more often than not, an angel is investing in you personally as much as in your company.
Angels prefer to invest in their local communities. In Tom Banse’s article, Angel Investors Keep Cash Close to Home, angel investor Steve Moore says he sees this local pattern as a sign that more people are looking to give literal meaning to the old phrase, put your money where your mouth is.
Angel investing is an option available to almost any small business owner; the key is finding the angels within your community and figuring out what your business is worth, how much money you need and how much equity you are prepared to give.
Remember, angel investors are committing equity capital and in turn will expect specific guarantees and returns. You will need to research and fully understand the impact of their contribution on your business and what sort of exit you can offer them. The good news is there are angels everywhere. Now is your time to shine.