Working with an angel investor means acquiring capital and seed money for your venture from individual investors. These individuals are typically wealthy professionals who are looking to invest their money in companies that have high prospects of growth. Such investors can make bond investment and may also claim a part in the management of the company, in lieu of the financial backing for the business.
Are Angel Investors for You?
Angel investors are perfect for early stage companies that find it difficult to get money from institutionalized venture capitalists. Since the angel investors put in their own money, they also have a genuine interest in the company, unlike institutionalized venture capitalists. A company that is looking for an angel investor, should ideally be open to welcome outside ownership. While not all angel investors look for claiming an ownership over the business that they are backing financially, some of them might just claim some investment bonds which they cash in at a later stage, when the company has taken off and is doing well. This can in a way, be a guarantee that there will be some return on the investment that the angel is making.
Who Needs Angel Investors?
It is relatively easier to find angel investors in a large radius of metropolitan and technologically savvy areas. Though the angel investors are expensive and may cost about 10% of the company’s equity, they also run a gamut of services and are in touch with both companies that are already running successfully, to those that need additional funding to launch a product or a service. For those companies that are in need of capital due to increasing services and products, these angel investors are ideal since they can provide the additional capital that can help to bridge the gap between the sales and the receipt of additional funds.
How Much Do Angel Investors Cost?
There are no fixed terms when dealing with angel investors. However, if you go through online platforms, some pre negotiated terms may be offered. Depending on the money being offered and the terms of the investor, you may have to part with some investment bonds of your organisation or retain the investor on a monthly fee for the experience and the value they bring in to the company.
The range of funds that are available with angel investors varies. These finds can typically range from $300,000 to $5 Million.
Where can you Find Angel Investors?
While angel investors are often difficult to find, once you have found them, your hard work pays off. Some of the places where you can find angel investors easily are:
- Universities that have entrepreneurship programs. These programs usually generate a high level of business activity. The people who run such programs, are generally in touch with several angel investors who are looking for good ideas and sound business ventures.
- Business incubators that offer entrepreneurs access to shared services and exposure to assistance at a professional level. Such incubators also prove a professional and entrepreneurial environment. Such business incubators may also give formal or informal access to angel investors.
- Venture capital clubs where angel investors meet in a formal setting. These clubs, though not publicised, may be well known of in a locality. Such clubs may be looking for interesting business ventures to invest in. There are also similarly functioning angel confederacies. Group members may invest either independently or together in a singe or multiple businesses. They collectively hold investment bonds, if any, in such large organisations.
How much does an Angel Investor Invest?
Angel investors typically invest about 5000 to 500,000 pounds a year in a growing business. The cost of the investment depends on the terms agreed upon. Usually such investments are expensive because even if an investor has taken investment bonds in the company, there is a high rate of folding for small businesses. There are no guarantees that the investment of an angel will pay off. While they do try to identify businesses that will be able to pay off well once they take off, it can not always be ascertained that it should be so. Most angel investors try not to put more than 5%-10% of their portfolios into such investments. Most of the investors only invest a small amount in start up ventures and invest the rest of it in investment bonds and stocks.
Angel Investors Profile
A typical angel investor has expertise in the business and has both experience and contacts in the specific area of expertise. For investors who have limited expertise in an area, the best option is to purchase investment bonds and venture only a small amount along side larger angel groups and syndicates.
An angel investor spends no more than 10 hours a week on company’s affairs. While it is definitely helpful to have an investor whose skill set complements that of the people already engaged in the business, it is not always possible to such kind of an arrangement. If the angel investor is not very conversant with the business practices of the venture, instead of keeping a retainer’s fee, the investor takes investment bonds and cashes them as the return on investment. Most investors would try to associate themselves with a business that they have some expertise in. This way, their skills blend in with the requirements of the business and they can see their money grow without being ‘interfering’ in the business matters.