Entrepreneur - Angel Investors
Angel investors are those who are willing to fund startup business.
Origin of Angel Investor:
In the early 19th century wealthy and visionary individuals offered to fund theatrical productions for upcoming theater professionals. So they were considered to be “angels” by the stage professionals.
Modern world angel investors:
Angel investors or angel groups are those who are willing to invest their own cash for a startup business. Most of them are successful entrepreneurs who are willing to help other entrepreneurs to start a business. These investors choose to invest in startup businesses as they expect a higher return from these than those from traditional investments. Angel investor should have a net worth of around $1 million.
Angel Group:
A group of angel investors is known as Angel group. Although it is a group, each angel invests independently and has their own part of the legal share. Being in an angel group it helps the investors to learn deal assessment abilities from other members.
Types of angel investors:
Angel investors can be of four types. They are as follows:
Guardian angel
These investors have a significant knowledge about the industry and involve themselves in building the business. Mostly these investors are one of the board members of the startup business.
Operational angel
These investors have the experience of being in higher positions in well established companies and so they provide valuable suggestions for scaling up operations for the startup business.
Entrepreneur angel
These investors are very useful to an entrepreneur who is a beginner. The investor guides the entrepreneur on how to negotiate financing terms.
Hands-off angel
These types of investors are those who are of other profession but are willing to invest in the startup business. Hence they will not be able to provide any help to the startup.
How to find a business angel investor:
Generally when a person starts a business the first among those to fund them for their startup is family and friends. They offer to invest in the business on the trust and belief they have on the person. They generally do not ask any security as the entrepreneur is known to them well. Another common investor is the high net worth investor who has a lot of cash and invests them in these kinds of startup so that they need not involve in the business directly at the same time have their cash grow.
The number of active angel investors cannot be estimated as there is no registration is required for them. These investors usually fund for a startup which requires a capital of $25,000-$1.5 million. An angel investor can be accessed through angel groups, online investor databases and capital brokers. Angel group is a network of angel investors who work together both in formal and in informal groups. The online investor database gives on the list of angel investors and their contacts. Capital brokers are the ones who help an entrepreneur to find the right investor for his or her startup. They charge a percent of the fund as a fee for them. Web sites are also created by entrepreneurs to help people find angel investors for funding. Gobignetwork.com is one such website.
Approaching an angel investor:
While approaching an angel investor the entrepreneur must be brief on his or her business. Also one must be honest about his investment opportunity. The entrepreneur must give a clear idea of his business so that the investor will be able to understand and invest in the startup. At the same we must give time for the investor to take decisions regarding his investments as pestering him would result us losing an investor for our startup. Look for an angel investor who is in your area as these investors prefer to invest in companies close by.
Some of the questions asked to entrepreneurs by angels:
- Name of the company
- Year in which the firm was established
- From whom did you hear about this angel group?
- What is the rate of growth of your company in the past few years?
- Describe your company in few words
- What kind of risk will we face in this venture?
- How much capital do you expect from us and how will you deploy it in your business?
- Tell us about the company’s share structure?
- Tell about your management team and their experiences?
- List your company’s milestones?
The Funding Process:
The process gives a gist on how an entrepreneur approaches an investor and from there how the deal is made. The entrepreneur presents the angel investor with a simple introduction of his company in a paragraph or two. This can be done through an email or visiting the investor in person. If the investor is interested he/she will ask for further information regarding the deal. Once the entrepreneur is contacted by the investor he can send the business plan and other information to the investor. On making a research on the investment opportunity, if the investor feels it is a good investment he sends a proposal to the entrepreneur. The proposal consists of the terms and conditions of the deal. After this an agreement is reached between the entrepreneur and the investor on the amount of equity that will be exchanged for the funding that will be made for the startup. Once the deal is made the investor is made a partner and the entrepreneur has the fund for the startup.
What the angel investors get from the investment:
Most angel investors invest using common stocks or preferred stocks as it gives 20-30% of the company shares as they concentrate on security. So they can get 5 to 10 times of what they have invested initially. Angel investors generally invest in lesser number of startup businesses when compared to venture capitalist. Angel investors also make a point that no business dealings take place without their approval.
