Entrepreneurship: How to tap into angel investing...
Angel investors are typically high net worth individuals and
“cashed out” entrepreneurs who are interested in
mentoring other entrepreneurs and sometimes get actively
engaged in the businesses they back. The Center for Venture
Research, at the University of New Hampshire, estimates that
angels pump $25 billion into tens of thousands of startups
annually.
In the past, angels have typically operated solo. But in a
trend that is gaining momentum nationwide, angels are forming
groups in order to pool resources and expertise, generate
investment ideas and create a formal screening process to
pinpoint the most promising prospects.
Here are tips about finding and approaching angels, from the
Angel Capital Education Foundation:
1. Angels are not venture capitalists (VC).
Angels invest their own personal funds in a business. VC money
usually comes from institutional sources. Angels also back
startup and early-stage businesses, while venture capitalists
prefer later-stage companies. Individual angels invest $5,000
to $100,000, while VC investments go $2 million and up.
2. To attract angel interest, be willing to give
up some ownership or control of your business, and be able to
show a significant return within three to seven years, as well
as a profitable exit strategy.
3. Seek angel funding when: a) your product is fully
developed; b) you’ve already invested your own money and
exhausted other alternatives (like family and friends); c) you
have existing or confirmed potential customers; d) you can
demonstrate that the business is likely to grow fast and can
pass $10 million in revenues within three to five years.
4. Angel groups
come in many forms, but generally share these traits: Members
help screen firms and commit to a certain amount of investments
yearly. Groups meet regularly (often monthly) to hear investor
presentations. Member angels decide individually whether to
invest in a business. Members work jointly to validate plans,
statements and entrepreneur backgrounds.
5. While angel group
sizes vary widely, the median pooled investment per round is
around $400,000. Some groups focus on specific areas, such as
technology, but most are open to a variety of industry sectors,
including software, medical devices, services and
manufacturing.
— Daniel Kehrer,
Bizbest Media
