Angel Investors

Someone to watch out for your business

By Jed Eane

Finding the right angel investor, or business angel as they are sometimes referred to, is imperative if you want to get your start-up off the ground. But as well as knowing where to look and whom to approach, you'll also need to know what's expected of you when seeking investment.

What Exactly Does an Angel Investor Do and Want?

Angel investor is the term given to a private investor, or group of investors, who take a stake in a fledgling company in exchange for their investment, which typically ranges from $25,000 to $100,000 for an individual, up to $1 million or more when acting in a group.

For this investment, the angel investor will expect a stake in the business of between about 5 and 25 percent. But that's not all. Most angel investors will also want a board position and possibly a consulting role. However, this should please most entrepreneurs because, as well as the financial backing an angel investor can provide, he or she can also offer support and bring to the deal years of experience and valuable business expertise.

What an Angel Investor Will Expect

Any investor wants something in return for his or her money, and an angel investor is no different. He or she will want to see a good return on investment, which means a better return than could be obtained on the stock market. Other attributes an angel investor will look for include:

  • Expertise. A certain amount of expertise and a good track record from anyone seeking investment is a must. If you can show that you've put your own money into your business, it will show commitment and is undoubtedly the same route your angel investor took when starting off in business.
  • Compatibility. This is important to an angel investor and it should be to you, too. Your relationship has the potential to be a long-lasting one so personalities are important, especially if both parties are going to be working on a close basis over a number of years.
  • A solid team. An angel investor will want to see that the individuals in your company have worked together for some time and have a stable relationship. You can have the best product in the world but without the right team it will be difficult to convince anyone to invest in it.

When pitching to an angel investor, show that you know all about the relevant market. An angel investor will want to know who your competitors are and what their strategies are, what the key success factors of your business - and others' in the market - have been, and who has failed and why. Prepare a solid business plan, re-structuring the business if necessary so that it is at its most efficient, and have a strong management team behind you before seeking investment.

To find an angel investor, start with angel investor networks. These are national and local groups of angel investors who meet regularly to discuss deals and learn about new business opportunities. You can find your local angel investor directory by searching online.

If you're not sure which type of investor to approach, generally speaking, angel venture investors differ to venture capital investors in that they are more likely to be willing to invest smaller amounts in a business, and take less ownership. Angel investors use their own money with which to invest, while venture capital investors use funds raised from wealthy individuals.