Angel investors are wealthy professionals or successful entrepreneurs who invest their own money in businesses in exchange for equity. Compared to bank loans or venture capital funding, angel investing is a quick process since there is only one person who needs to be convinced to extend funding, as opposed to a board or a committee of investors. Also, the money is usually given as a lump sum, which gives you the freedom to quickly grow your business, unlike other forms of funding where the money is given over several stages.
You can find angel investors either through your business contacts or through established websites like Sydney Angels, Australian Investment Network, and Business Angels. Angel investment is an attractive option for budding entrepreneurs; but there are a few things you must know before you take the plunge.
Which Investor is Right For You?
When you are trying to get your business started, it may seem that approaching a broad range of investors increases your chances of getting funding. But this strategy can set you up for trouble later.
Ideally, approach an investor who has experience in your industry and is familiar with your line of business. This is because an angel investor can also play the role of a mentor to the entrepreneur. Therefore, it will help you immensely if the person has solid experience in your industry. Also, since the investor has put his or her hard-earned money into your business, you can expect them to be more involved in critical decision-making. Try to get clarity on how involved they plan to be in your business. If you do not prefer the investor to be too involved in your business, then someone who demands to be part of everyday decision-making may not be the right choice for you.
How Much Money Can You Hope to Raise?
Typical angel investments range from $10,000 to $100,000. Funding can be given through the purchase of stocks, secured or unsecured loans, or convertible promissory notes. Before you sign the funding contract, make sure you get it reviewed by an accountant and a lawyer to ensure the terms of the contract follow your interests.
What Does an Investor Expect to See in the First Meeting?
In your first meeting with the investor, you would be expected to deliver a short pitch on your business. Your pitch should include basic information on your product, the current state of your business in terms of employee strength, market reach, annual turnover, the reasons you are looking for funding, and other relevant data or figures. In the case of new products, carry a prototype or a working model of the product so that it is easy to demonstrate your idea.
What Will an Angel Investor Look For?
An angel investor will look for the following before taking a decision:
Market opportunity for your product
Amount of funding you hope to raise
Experience and qualifications of your core team
Credibility of your financial projections
Key assumptions in your pitch
How your product or service is different from that of your competitor
How you intend to use the funds
Your marketing strategy
Angel investors are a great value addition to your business because of the mentoring they provide and the important contacts they bring. It is best to be honest in your discussions with a prospective investor to set off the relationship on the right foot. Come prepared with your pitch and make sure you carry supporting documents and relevant data to help the investor make a speedy and well-informed decision.