Business Angels - Sources Of Business Startup Funds
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The following extract is from a series of small business articles and videos about raising capital for your business using business angels …
For a new business, financing can feel like a catch-22. It is usually necessary for the business to be showing a profit before venture capitalists or banks are willing to provide an injection of capital. Personal investments, credit cards, and help from friends will provide some cash, but often a financial gap remains. New business owners may question how they can possibly bridge the gap.
Enter business angels. An angel is a private investor, often a successful existing or previous business owner. Angels have been an important source of startup business capital for many years. Angels often provide much more than just cash. Their expertise and industry associations can prove quite valuable. They want you to be successful and will work hard to help you do so.
For all their positive attributes, business angels should not be seen as smiling philanthropists, showering money and advice with no thought of their own needs. Rather, they are astute investors who expect a significant return on their investment.
The dot com boom and later bust of the early 1990s affected how business is conducted in a number of ways. Many angels were burned, losing sizeable sums of cash. Fallout from that experience has caused angels to be more cautious in their investments. No longer happy to hear a loose pitch read from a piece of paper, today’s angels generally want to review a business plan. They also want a specific exit strategy, laying out how and when they will receive their money.
Finding an angel used to be mostly a matter of luck, as they preferred doing business quietly with friends or referrals. They did not advertise their services. This is still the way that most angels prefer to do business. However, in recent years angel groups have begun to appear. It is now estimated that these angel groups handle approximately 15% - 20% of all angel work.
Sometimes you are approached by a possible angel investor. This happens only rarely, generally when the angel is a friend of a friend. This is often an easier “sell,” as the angel’s curiosity has already been piqued.
Most of the time, you will have to approach the angel directly. The angel groups generally have a series of specific steps and conditions that new submissions must follow. Most often, you will query the angel with a copy of the Executive Summary from your business plan. If your query is accepted, you may be immediately invited to make a presentation, or there may be additional screening steps.
In either case, if you make it through screening, you will eventually have to make a sales pitch in person. While banks are strictly interested in the numbers, angels usually tend to invest in people rather than numbers and projections. This does not, however, mean that you can let the numbers fall aside. A well-written, professional, and, most importantly, accurate business plan will be the basis of your pitch. Angels are interested in maximizing their roi (return on investment). However, you should also expect to spend some time promoting yourself, selling the angels on not only your business concept, but on you as the best possible person to run it.
Angel investors can be the most important source of finding money to start your new business venture. Often, angels have been in your situation, having started off their own businesses with the same difficulties, and can understand the problems you might be facing. This, in itself, is probably your biggest advantage to convincing angels that they should invest in your business. Sell your products and services with a solid business plan, but promote yourself as well, using both financial figures and personality to secure the investment.
For more articles on startup business financing, go here: Startup Business Capital
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