How do I get an angel investor?
Angel investors are wealthy private investors focused on financing small business ventures in exchange for equity. Unlike a venture capital firm that uses an investment fund, angels use their own net worth.
Angel investors are wealthy private investors focused on financing small business ventures in exchange for equity. Unlike a venture capital firm that uses an investment fund, angels use their own net worth.
If you're thinking of starting a business, you may be wondering how to find an angel investor. The best way to find an angel investor is to network with people who are likely to be interested in your business. This includes people like family and friends, business associates, and other entrepreneurs.
Participating in startup events, pitch competitions, and industry conferences can be a great way to expose your startup to angel investors. Investors could be convinced by your product pitch, or your personality might inspire them. Participating is one thing—winning is another.
Understanding Angel Investors
They search for startups with intriguing ideas and invest their own money to help develop them further. The ventures are by nature extremely risky. A survey by The Angel Capital Association estimated that only 11% of such ventures end with a positive result.
Finding the right angel investors is going to take a lot of meetings—more than many entrepreneurs expect. A good rule of thumb is 50 introductory meetings. But these meetings are a great opportunity, even when they don't lead to funding.
If your valuation is around $1M, you can validly ask for $200K–$300K, and offer 20–30% of your company in exchange. Type of investor. Angel investment groups usually won't consider a request over $1M, while venture capitalists won't look at anything under $2M.
In most cases, it is advisable to have at least $25,000 available for investing purposes. However, if a startup is seeking a large amount of funding (say $1 million or more), then angels may need upwards of $100,000 to make a meaningful contribution and secure a spot in the syndicate.
Yes, fortunately there are numerous free angel investor lists, many of which can be found with a quick search on the internet. One in particular is www.Invstor.com. The Invstor.com Network exists to connect entrepreneurs, job seekers, advisors, investors, and everyone else in the startup community.
Above all, angel investors are looking for a high rate of return on their initial investment. They'll want to know if the business idea fills a gap in the market with potential for significant growth. The product or service should be new and exciting – so you'll need a heavy-hitting, detailed pitch to sell it.
What return are angel investors looking for?
While it varies depending on the individual investor, the average return for an angel investor is thought to be around 20%. Of course, there are always exceptions to this rule and some angel investors have made a lot more (or a lot less) money from their investments.
Seeking angel investment is very difficult. Since they tend to operate as individuals (only clustering through networks or syndicates), they view returns on an investment-by-investment basis. This means they are far more risk averse, and will therefore be much more selective around where they put their money.
The disadvantage of the angel investor's higher tolerance for risk is that also they usually have higher expectations. They are in business to earn money, and as there is a significant quantity of funds on the line, they are going to want to witness a payoff, just like anyone else is.
Angel investors typically take a 10% to 25% share of your business, which leaves you firmly in control. Some venture capital schemes (see below) also stipulate that an investor cannot take larger than a 30% stake in a business, ensuring founders retain control of their business.
Angels who spend less than 20 hours have an average return of 1.1X capital. Angels who spend more than 20 hours have an average return of 5.9 X capital. Angels who spend more than 40 hours have an average return of 7.1 X capital.
Angels get their payback through an exit that lets them liquidate their stake and potentially make a profit that's based on the percentage of the business they own. Generally, investors will pre-plan the details of the exit when negotiating the term sheet before they invest in the startup.
Angel investors are about equally likely to invest in a company at either the seed stage or the early stage, with around 40% of angel investments happening in each of those two stages.
In the Shark Tank setting, entrepreneurs appear on a national television show to pitch their businesses to the sharks, a group of well-established angel investors. Each investor then decides whether to invest in the pitched businesses and, if so, negotiates the investment terms.
A lot of advisors would argue that for those starting out, the general guiding principle is that you should think about giving away somewhere between 10-20% of equity.
Angel investors are typically high net worth individuals who invest their own money in early-stage startups. They usually invest smaller amounts, ranging from $25,000 to $100,000, and take equity stakes of around 10-30% in the company.
Can I get a loan from an angel investor?
Loans/convertible debentures from angel investors and others
Early angel investors, founders, family and friends may provide financing through loans or convertible debentures.
Yes, investors should be paid back.
When a company entered into a contract with investors to invest, they write an agreement they should refund the money even if the company fails.
It may range from a few weeks to several months. It depends on factors such as the ticket size (how much money is going to be invested), stage of the company, and decision processes of the investor. Business Angels invest their own money, and tend to sign small checks in very early stage companies.
An angel investor is a wealthy person who invests his or her own money in a company—usually a start-up—that is in the early stages of development. Angel investors expect to take ownership positions in the companies they support because their capital is unsecured—they have no claim on the company's assets.
Define angel investors. Wealthy individuals who make direct investment in entrepreneurial firms.
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