Most often than not, every business would need some form of funding at some point or the other, one of the major ways to get funds for your business is through angel investors.
The angel investors we are talking about are not heavenly bodies like the angels mentioned in the bible, they are very wealthy individuals with the interest of investing in business.
One key thing to be aware of about angel investing is that you will have to give up some euity i.e you have to give a portion of the ownership of your company out to the angel investor.
The aim of this post is to enlighten you on how angel investing works, the pros and cons in it , how to find angel investors and how to pitch your business to them.
But before i move on, i wouldn’t want to assume that all my readers understand what angel investing is so i’ll start with an introduction.
To start with, let me clear this first. Angels in this context are not the spiritual beings in heaven, angels are human beings.
Here are some few quick tips about what happens in angel investing
Angels are people with a lot of money to invest in smaller businesses. Many at times they are entrepreneurs themselves who try to help other smaller businesses thrive by providing financial assistance among other things to them.
They give you a written cheque of the amount you agreed on then take a percentage share of the ownership of the business after which they sell their stake for a significant amount.
In the event that the business fails, you dont have to pay them back the money they gave you.
From the above, it is clear that its a high risk strategy with respect to the angel investor because if the business fails,nthey end up losing the money that they invested.
Their aim bacisally is to make alot of profit from the business and then cash out . They many at times invest in small businesses that has a very high success potential.
PROS OF ANGEL INVESTING
1. AVAILABILITY OF RESOURCES
Angels are very much likely to invest in any business that has the potential to grow or any business that other investors abstain from.
They tend to take more risks in investing than other investors like banks, venture capitalists, private equity firms and so on .
2. ANGEL INVESTORS ARE FLEXIBLE.
When seeking investments from an investment firm for example a bank, there are some requirements to meet before your request can be granted like the size of your business interms of your employees, the amount of money they are willing to provide and so on.
Judging by that statement in the previous paragraph, its clear that some firms can be strict when it comes to investing but angel investors are an exception.
3. THEY JOIN HELPING HANDS
Angel investors join helping hands into making your business a success. Apart from the financial assistance being rendered by them, they also provide assistance by drawing on their own experiences and applying them in the business.
They also help the business with connections to several places, people and events. They literally help the business in terms of exposure.
4. HIGH SUCCESS RATE
According to a research done in Harvard Business School, it was said that businesses that were funded by angel investors had higher survival rates, high growth rates and were able to get funding from other investment channels.
CONS OF ANGEL INVESTING
1. INVESTOR’S HIGH EXPECTATIONS
When angel investors invest, their main aim is to cash out really big most of the time its 10 times their original investment. As a result, they tend to invest in bigger businesses that has a high success potential due to their high return expectations.
So therefore, if you want to get an investment from an angel, ensure you have a business with a high success potential and also pitch your business very well.
2. LOSE OWNERSHIP
When dealing with angel investors, part of the deal that you must sign is to give out a portion of the ownership of your business to them.
This means that they get to make some certain decisions in the running of your business and you will have to answer to them in some areas.
If the business hits, you could loose some of your profits to the angel and the investor could have a lot of stake in your business.
HOW TO FIND AND WORK WITH AN ANGEL.
To work with an angel investor, you have to find one. It has been discovered that most businesses that thrive on the platform of angel investments found their angel investor in their locality.
To that effect, to find an angel investor to work with, the best bet is to check first in your locality.
There are many avenues for locating one. Some of those avenues are AngelList, seedinvest, dreamfunded and so on.
You can also find an angel who isnt termed an angel and who isn’t in the angel list in those avenues listed above. You can also find angels in business conferences among others.
The next thing to do after finding an angel investor is to pitch your business to him or her.
Pitching your business well can go along way in contributing to the success of your business.
To learn how to pitch your business idea, check out my new posts for more details
To work with your angel invester, you need to clarify things upfront interms of the percentage ownership that will be given to him, his involvement in the business activities and so on.