What Are Angel Investors?
An angel investor is NOT an investor with golden wings and a halo but rather an individual who provides startup capital to a new business and expects a percentage of ownership equity in return. Angel investing is a common business practice in the United States and Europe but will often take on different names depending on the country. In the United States, the term ‘angel’ derives from the early twentieth century when wealthy businessmen eagerly invested in lavish Broadway productions. Throughout Europe, an “angel investor” is known as a “business angel,” a financier who provides equity capital for startup companies and growing firms. Regardless of location, most angel investors invest their own capital, although there are some angel groups (or angel networks) where several investors combine their capital so they can invest in more opportunities...continue
Types Of Angels Investors
In today’s business world, there are many types of angel investors with differing personalities and motives. Despite this adversity, many angel investors fall into three main categories: Core angels- These investors are individuals with extensive business experience who have operated and owned successful businesses of their own. Their vast amount of wealth was accumulated over a relatively long period of time. They are committed to their job of angel investing and continue to be involved with high risk investments despite their losses. They possess a diversified portfolio that encompasses all industries, including public and private equity and real estate. They serve as valuable mentors and advisors to their invested companies...continue
Critical aspects of an Angel Investor - Angel Investors
Unlike institutional investors (banks and venture capitalists), angel investors have diverse backgrounds and perspectives. Their presumptions of how startups should be carried out are not always similar. Therefore, some angel investors can be either beneficial or detrimental to entrepreneurs who are interested in starting their own business. Since angel investors invest in fewer companies, their perspectives on how their portfolio startups should be taken forward can be dramatically different from those of institutional investors(venture capitalists) who have experience in investing in tens and hundreds of companies. Although raising money from angel investors has its own set of advantages, entrepreneurs should understand the nature of the angel investor before signing the term sheet...continue
Angel Investments in 2008 and 2009 During the Economic Downturn
There is no doubt that the current economic crisis has certainly affected mainstream America. From overall reduced consumer spending, to layoffs hitting an all time high, to home foreclosures, to the bankruptcies of small and large businesses alike, it is apparent that everyone is feeling the impact of today’s down economy...continue
Angel Investors And How They Can Help You
Different funding opportunities exist for people who are seeking startup capital. These funding opportunities can range from taking out a small business loan from the local bank to borrowing money from relatives and friends. Another option to obtain necessary startup funding is through an angel investor. With several different funding opportunities available, it is important to understand the ramifications of each loan in your business pursuit...continue
The Changing Face of Angel Investors
Most small businesses are financed by numerous sources, including personal funding, financial support of family and friends, and bank loans. If you just started a business, which has not yet established a strong trading record, you may find it a bit difficult to borrow money from any financial institution. An angel investor typically invests in small businesses that are too young to qualify for bank loans or other traditional means of financing. They can also benefit those who cannot afford the down payments on traditional loans. Angel investors actively help entrepreneurs who seek capital for their small businesses so that their start-ups, expansions, and innovative ideas can become a reality...continue
The Changing Landscape of Indian Entrepreneurship and Angel Investments
In the late 1990’s, India had become the world’s leading back-office to many American-based companies. Since many Indian employees had strong engineering management and software coding skills, their efforts were very beneficial when working on specifications provided by product design teams that were stationed in the U.S. and other western countries. These product design teams went through exhaustive market studies before establishing product design specifications, which were then sent to the Indian engineers who converted the specifications into software products. Due to this informal route, many Indian managers and engineers never experienced the opportunity to understand the entire product design process and the global technology markets...continue
How To Connect With Angel Investor Groups
Angel capital is the best type of funding to obtain for your start-up once all seed capital options (money from friends and family, personal savings, bank loans, and credit cards) have been exhausted. The best way to find the principal investor for you is by doing some basic research on angels that you plan to approach. Just ask around- Often times an entrepreneur, in need of angel dollars, can ask their business associates and their acquaintances. Your personal accountant, banker, and lawyer are also great sources to ask because they may have clients who are angel investors. An entrepreneur can have a greater chance of securing financing from people that s/he knows through family, friends, colleagues, etc., but may not be as successful the farther the relationship is with the investor...continue
Raising Angel and Venture Capital in India
Over the years, many bright and talented scientists, engineers, and other technologically-adept individuals have emigrated from India to the United States with the hope of experiencing America’s free social and economic structure. As a result, they studied at the finest universities and were recruited to work at well-renowned companies in order to achieve the American dream. Despite the adversities associated with adjusting to a new country, most of them worked extremely hard, succeeding in their chosen fields and greatly contributing to many important causes. One particular field that many Indians have triumphantly thrived in is information technology. In fact, many Indian-Americans were at the forefront when the IT industry exploded in the 1990s...continue
Angel Investor Network - Investment Groups and Firms
There are pros and cons in angel investing, yet despite these differences, the advantages considerably outweigh the disadvantages. Some benefits lie in the unique characteristics of angel investors, where they add value to a company, are geographically dispersed, and are more permissive investors than their venture capitalist counterparts...continue
Pros And Cons Of Angel Investing
There are pros and cons in angel investing, yet despite these differences, the advantages considerably outweigh the disadvantages. Some benefits lie in the unique characteristics of angel investors, where they add value to a company, are geographically dispersed, and are more permissive investors than their venture capitalist counterparts. Angels also tend to seek smaller deals, prefer the risky, early start-up stages of enterprises, and invest in all industry sectors. In addition, angels are associated with a leveraging effect, offer loan guarantees to their investees, and their investments comprise of no excessive fees as financial institutions often require. Rare follow-on investments and a desired amount of control in a firm are some inconveniences associated with angel investments. Some angels can even turn out to be a “devil” in disguise, where they are only concerned with monetary gain and/or may not have industry expertise as entrepreneurs had expected...continue
When Do Angel Investors Usually Invest?
In general, angel financiers usually invest in seed, start-up, or early-stage business developments. However, angels are also known for investing in companies that are financially struggling and need capital for survival and/or revival. In the seed phase, a marketing concept exists but a management team, prototype, or business plan has not been implemented yet. In the start-up phase of a company, an archetype is developed, and the initial business plans and marketing strategies are proposed. The first/early-stage of development occurs when a business has already established a management team and is actively selling a product or service. Entrepreneurs may experience obstacles in these early-stages and should work with advisors who have experience in the industry, so that they can help the entrepreneur’s company to grow and raise additional equity. Despite these early-stage challenges, angel investors tend to be patient and risk-tolerant...continue
Things Angels Investors Bring To the Table
Angel investors are private individuals who typically provide necessary capital for small businesses in their start-up phase. Many times, entrepreneurs have exhausted all of their own personal and borrowed funds for their businesses and do not qualify for bank loans or venture capitals. Angel investors make it possible for small business owners to obtain necessary funding in order to make their productive ideas a reality. Angel investment is a lucrative market and is extremely large, encompassing $30 billion per year, two times the amount of the venture capital market. The classic characteristics of an angel investor are as follows:..continue
Some Questions That Angel Investors Will Ask An Entrepreneur
The opportunity to present to an angel audience is an honor. The entrepreneur should make contact with as many angels as possible and even though many of the prospective angel investors will not invest in your given venture, it is always good to construct your pitch in a simple and effective manner that will be highly remembered. Too much or too little detail can lead to confusion and to uninterested listeners. A really good presentation is one that is succinct, yet powerful, and will only come with practice. Your pitch should be rehearsed many times to as much people as possible. Each time you present your business plan, not only will you improve your verbal skills, but your audience can also provide constructive feedback on your presentation. Their array of opinions and ideas are very valuable and you should modify your pitch according to their insight...continue
The Essential Components That Appeal To Angel Investors
Often times, entrepreneurs are rejected for needed capital because their venture does not match the investor’s criteria, standards, or investment preferences. Some important fundamentals to consider when selecting an investor is the type of industry involved, the company’s stage of development, the amount of capital that needs to be raised, and the geographic location of the enterprise. Business owners can save ample time and frustration from investor rejection simply by conducting a substantial amount of research on potential investors and making sure that their company complements their investors’ requirements. Most angels prefer to invest locally for a variety of reasons. First, the convenience of proximity will allow them to frequently visit the companies they have invested in, so they can regularly convene with the management team and be present to witness their investment progress...continue
Steps for Winning Over an Angel
Having angel investors to fund your start-up is not an easy job. Angel investors have to be enticed into your sales pitch before they agree to finance any business ordeal. According to David Amis and Howard Stevenson, co-authors of the book, Winning Angels, The 7 fundamentals of Early Stage Investing, there are several steps that first-time entrepreneurs must take to win over an angel investor. First, you must identify yourself in one of three categories. Second, angels are always “sourcing” for new business ventures. You must identify the appropriate angel benefactor who will fund your start-up. All angels have the following. Business owners should seek to meet angel investors only when their product is truly ready to be introduced to the market...continue
The Relationship between Angel Investor and Entrepreneur
The relationship between an entrepreneur and their angel investors is much like a marriage in which open communication is crucial for its success. This bond is first established when the entrepreneur finds an angel investor to fund their business endeavors. Entrepreneurs should propose a solid business plan, including marketing and financial projections, amongst other things, to their potential investors. Angels also like to look at an entrepreneur’s business experience and management skills, which is very influential in their decision to invest. Once angels gain interest and confidence in a particular business proposal, it is possible that entrepreneurs can obtain angel dollars to finance their business...continue
Angel Investor Decision Making
In a recent survey, angel investors and venture capitalists were asked to rank the most important factors when valuing a company prior to investment. These factors were ranked from 1 (most important) to 7 (least important). The following chart illustrates these differences: Even though both groups of investors ranked the factors differently, the table above (Table 1) illustrates that both angels and venture capitalists mostly rely on the top four mentioned aspects (quality management, growth potential, product, and size of the market) when deciding on an investment. In addition, quality management had a higher average point score by angels than venture capitalists (7.1 versus 5.4). This distinction can be attributed to that fact that most angels tend to invest in a company’s early stages. Perhaps that is why they feel the management team is more important when compared to venture capitalists...continue
Angel Investor Involvement After Closing The Deal
It is extremely important angel investors and entrepreneurs agree with each others’ business goals and perspectives before a deal is financed. However, the relationship between the entrepreneur and angel investor does not end when the deal closes. After the closing of the deal, it is vital there be a positive, open, and honest relationship between both parties throughout the span of the company’s development. The following are some expectations angels have and options to consider after the closing. This system refers to the investor reporting package which keeps an angel informed about the company in a timely manner. The entrepreneur is expected to send a quarterly letter to all investors regarding the company’s performance as well as a monthly basis contact with lead investors concerning the organization...continue
When Angel Investors Says No
Angel investors are the best source of funding for early-stage businesses and even though they review thousands of financing applications every year, only a small percentage of enterprises will actually receive their needed capital. Known for their high-risk deals, there are a few rules that may influence an angel investor’s decision in rejecting an investment opportunity. Here are some of them. Most experienced angel investors will use their instinct when deciding on a particular investment. They are influenced mostly by factors such as credibility of the proposed business plan, the entrepreneur’s presentation, due diligence findings, etc. If an angel investor experiences any doubt regarding a particular investment, they will simply reject the application...continue
When Angel Investors & Venture Capital Investors are on Same Team
Being an angel investor is not an easy job. Angels put a lot of time and effort in searching for new investment opportunities, evaluating countless numbers of business plans, conducting timely due diligence, examining management teams, and validating novel technologies for the marketplace. Their role as an independent investor may often require some flexibility in order to meet the challenges of their demanding profession. Many angels would prefer to pool their money from different sources rather than be the sole financier of a given investment. They would also prefer to employ different people who can take on their tedious responsibilities and make many of their critical financial decisions...continue
How to Become an Angel Investor
As defined in the Securities Act of 1933, an angel investor is an accredited investor who has an individual or joint net worth that exceeds $1 million at the time in which an investment is made. They are also individuals who have a personal income of at least $200K in each of the two most recent years of investment or have a joint account in excess of $300K in each of those years, and will have the same expected income level in the current year. Angels invest their own personal wealth in early-stage (seed and start-up) companies. Several decades ago, the word “angels” referred to people who helped fund Broadway entertainment. However, in today’s business world, the term “angel investors” takes on a whole new meaning...continue
How Long Should an Angel Investor Invest In a Company?
The goal for angel investors is to provide capital seed funding for early stage companies with the promise of receiving high net worth in the end. There are many misconceptions about the length of time that an angel investor should invest in a company. Some entrepreneurs believe that once the angel investors give them the money, these angels will simply wait around for years until their funds are returned with interest. Angel investors can be very patient and willing to make long-term investments; however, they need to envision a clear picture of the company’s overall rate of return on their investment. According to Dr. Jeff Cornwall, the Director of Belmont University’s Center for Entrepreneurship, an angel investor should not be tied to any financial commitment with a company for more than three to seven years...continue
Angel Investor Returns
The University of New Hampshire’s Center for Venture Research recently conducted a study on angel investors who financed several software and early-stage high-tech companies in the New England area. Of the companies that were surveyed, it was reported that angel investors were seeking an average of a seven-in-seven return; that is, they required seven times their invested capital over an expected holding period of seven years. This renders an average expected return of 32%. Not only did this approach demonstrate the tremendous amount of patience on the angel investors’ behalf (willingness to remain in a deal for seven years), but it also showed their rather modest ROI prospective (since many early/seed-stage investors actually earned on average a compound ROI of 65.5% over the last five years)...continue
The Importance Of An Attorney For An Angel Investment
Angel investors provide a very valuable and reliable means of capital for start-ups and early-stage businesses. They tend to generate preconceived images of being compassionate and charitable individuals who provide the much needed guidance and support to struggling entrepreneurs. But as with every business transaction, they are subject to federal and state securities laws. When an entrepreneur offers an investor equity interest in his business, whether it is common stock, a partnership interest, or an interest in a limited liability company, he or she is offering to sell a security. These securities must be registered for sale under federal and state securities laws, unless there is an exemption. For first-time entrepreneurs, this registration process can be a bit time-consuming, complex to understand, and costly...continue
Due Diligence Red Flags - Angel Investment
Due diligence is the routine process by which investors diligently investigate the entrepreneur and his/her company to confirm the authenticity of a business endeavor. This may entail researching business founders and their management team, reviewing documents, endless amount of questions, and asking for references. In a recent study conducted by the University of New Hampshire’s Center for Venture Research, angels who practiced increased due diligence received more overall profitable returns. Experience has also shown that without performing detailed research to verify an investment prospect, an investor is taking a significant risk. By executing effective due diligence, many investors may save money and may even help companies avoid serious legal complications. The following are some of the “red flag” warnings that angel investors may encounter when conducting due diligence:..continue
Due Diligence Checklist - Angel Investment
Every investor approaches due diligence differently. Some angel investors may request information in a detailed manner all at once, while others may simply request information at different times or stages. Regardless of an investor’s method to obtain information on a potential company, it is a proven fact that exercising thorough due diligence is indicative of more profitable returns. The following documents may be requested in due diligence. The articles of Incorporation (and all amendments), bylaws (and all amendments), minute book (including all minutes and resolutions of shareholders and directors, executive committees, and other governing groups), organizational chart, list of shareholders (and number of shares held by each), agreements (relating to options, voting trusts, warrants, puts, calls, subscriptions, and convertible securities), active status reports (in the state of incorporation for the last three years)...continue
How To Raise Angel Capital - Raise Capital For Your Business
As with every business venture, it is crucial to devote ample time and budget in finding the right angel investor. Once a prospective angel investor or angel groups are identified, the entrepreneur must then go through several steps to obtain their desired capital. In order to raise any kind of capital for your business, a funding request must be made. This is a letter that is sent to an angel investor/group describing your need for funding and requesting a meeting to discuss your proposal. A carefully planned request can be the difference between having an investor finance your venture or being completely disregarded. Some prominent mistakes that many entrepreneurs make when writing a funding request are spelling and grammatical errors, providing too much or too little information that makes their request difficult to follow, and creating too much hype about their business’ products and services...continue
Using Angel Investors To Raise Startup Capital
Many people who are looking for startup capital for their new business do not want to utilize outside angel investors to raise the money. For the most part this is because they do not want to be tied to another individual when it comes to the profits and business decisions. But for some people trying to get startup capital going there are times where an angel investor is the only option that is available. It is important if you starting a new business that you are aware of this option and how they can help you. Angel investors usually are successful entrepreneurs who are able to offer a great deal of startup capital in return for an expected large profit and dividends when the company starts to make money...continue
Angel Investors Vs A Small Business Loan When Raising Startup Capital
Looking for funding for your new business can come from a variety of sources. There are numerous options to consider when you are looking for startup capital and it crucial that you explore the different choices available to see what will work for you. Below you will find two options discussed which are angel investors and small business loans. When looking for funding from these two options it is important to ask yourself what level of control do you want of your new business and also when will you have to begin paying back the money. Angel investors are a great way to gain startup capital rather quickly for your new business. Angel investors do cause a bit of concern for people as they are unsure if they want to give up part of the control of the new business. When you are looking for funding from angel investors you need to understand that they will want to control certain parts of the company in return for their investment money...continue
Angel Investors As An Option To Get Your New Business Going
Angel investors are individuals who will provide your new business with the necessary startup capital for a share of the profits and/or control of the company. For some people using angel investors is an unwise decision since they do not want other people possessing a say in how the company is run. On the other hand, the ability to have the startup capital provided for your new business combined with the expert advice angel investors bring to the table, may make this a viable option for you. Angel investors are predominantly business people who have decided to use their finances to invest in other people's companies. They provide all or a part of the startup capital in return for a share of the profits or stock in the company should it ever become publicly traded. This can be a win-win situation for a new business since angel investors have a vested interest in the company and will want it to succeed...continue
Angel Investors 101
One of the most difficult responsibilities of a prospective entrepreneur is finding the necessary startup capital for his/her new business. Traditional sources of funding, such as bank loans, do not have very flexible agreements, often leaving the new business owner high monthly payments with accrued interest and other additional mandatory fees. With this in mind, most prospective entrepreneurs search for other options of raising capital in order to make their business ideas a reality...continue
Finding An Angel Investor
If an individual has a unique idea for a new business venture, then the opportunity to obtain funding from angel investors can allow them to take their new business idea to the next level. While there are many individual investors to choose from, there are also many national and local groups of angel investors available. Each angel network operates in a slightly different manner. For example, some angel investors may charge an immediate fee for consideration of an application, while others may not even request such a cost until the prospective applicant is approved. There are some angel investor groups with websites that encourage the applicant to fill-out an online application form, while other groups may accept a written funding request through direct mail...continue
How to Get Funded by an Angel Investor
Angel investors are like mentors, and entrepreneurs who seek funding from them should expect the investors to have more than just an interest in the company. Angel investors are known for active participation in their invested company, including the involvement in day-to-day company operations and business decision-making. While the process of obtaining angel capital is quite competitive, entrepreneurs should consider the nature of the relationship with the investor, as well as other key components that may increase their chances of obtaining angel capital. Below are some steps new business owners can take in order to get funded by an angel investor...continue
Most Commonly Used Terms For Investors - Glossary Of Terms
Accredited investor- According to the Securities and Exchange Commission, Rule 501 of Regulation D, an accredited investor can be a bank, insurance company, charitable establishment, or person who has an individual or joint net worth that exceeds $1 million at the time in which an investment has been made. Individuals who are considered to be accredited investors should have a personal income of at least $200K in each of the two most recent years of investment or have a combined account with a spouse in excess of $300K in each of those years. They should also have the same expected income level in the current year. An accredited investor can also be an employee benefit plan or a trust that has assets exceeding $5 million...continue