Raising Capital from Angels
Welcome to the world of Angel Investors.
Many technology-based entrepreneurs like yourself realize that in order to scale your business, additional capital is required. You understand that you must sell a stake in your business, give up some equity, in return for this capital. The amount of money you need is probably outside of your "friends and family", probably ranging from $500,000 to $2 million. Banks won't loan you this level of funding because your company and revenue history are too unproven. Most venture capitalists are not interested in investing in seed, early stage, or investments of this magnitude.
Angel investors and Angel Groups fill this Capital Gap between seed stage and growth stage. Angels also like to mentor co.'s, are typically past successful entrepreneurs, and enjoy shaping a new company. Being actively involved may be one of their requirements for investing.
Some facts about Angels:
- The Angel Capital Association reports there are more than 275 angel groups in the USA, representing an increase of 65% since 1999.
- Some are formally organized into a "fund" of pooled money, while others are very informal, such as six wealthy buddies getting together once a month.
- Angel investors invested $26 B in 2007 into startups according to the 2007 Angel Market Analysis released by the Center for Venture Research at the University of New Hampshire. By contrast, Venture Capital firms invested approximately $23 B into Series A and B start-ups.
- Angels invest their own money into companies. By contrast, VC's invest other people's money into companies.
- Angels tend to invest in deals that are close to home e.g. within a three hour drive.
- When working in groups, angels tend to invest more wisely and more often. Deals tend to get done if there is a lead angel conducting due diligence. The lead will often inspire and motivate the other investors towards a closing.
- When a recognized investor is involved, other angels will join the deal. If a deal has been led by an acknowledged and experienced angel and that individual takes a position on the board of directors, this raises the comfort level of other investors and some angels will invest outside of their interest or focus area of expertise.
- Angels like deals that are well prepared and where the presenter makes a clear, cohesive pitch. Make sure you present an easy to understand value proposition for the business and a clear value proposition for the investor.
- Angels invest mostly in the seed, early stage or series A round. Many angels will only invest in the round if the amount being raised will take the company to cash flow break even.
- Attitude and Passion for your business is very important. If you are an exciting personality, then present your co. yourself. If you are not, you’ll probably have a better chance by finding a coach or asking a colleague to pitch the deal to a group of angels. The founder should always be present and ready to answer any questions.