Angel investors often maintain a focus on local start-ups.
Angel investors, or private individuals that offer venture capital to entrepreneurs launching new endeavors, can serve as a valuable financial and informational resource in the business start-up process. Entrepreneurs may face tough competition for angel investments, though, and some angels have high expectations for the organizations they select.
Description
Angel investors, according to Small Business Notes, are typically wealthy individuals who offer money to newly formed businesses as an investment vehicle. These investors seek a higher return on their investment than traditional stocks or securities can offer, and many are, themselves, entrepreneurs who want to become involved in a fledgling organization. Small Business Notes says the term "Angel" dates back to the early 1900s and referred to wealthy businessmen who helped get professional theater productions off the ground. To ensure the success of the new business, and raise the likelihood of the investor earning a return, many angels offer entrepreneurial advice, provide additional private loans and even offer to guarantee new debt for the organization.
Finding an Angel
Angel investors may seem somewhat elusive in the start-up business marketplace, as many prefer to remain anonymous and do not list themselves on common financial assistance references. The small business capital organization Grow Think offers some ideas for finding angels, as it notes that online forms and other applications do not typically help new businesses find this type of investor. According to Grow Think, entrepreneurs who network with other successful business owners or who gain referrals from others stand the greatest chance of securing angel investment funds, but some start-up owners focus their prospecting efforts on uncovering an angel in the community of retired executives and existing business owners. A 2008 article in Businessweek also suggests that entrepreneurs can connect with potential investors on the Angel Capital Association's official website or through the Angelsoft organization.
Benefits
In addition to start-up money, angel investors can offer a wealth of information to entrepreneurs launching new ventures. Businessweek notes that angel investors typically want to guide the business to help it succeed, and many request a seat on the board of directors in exchange for their investment. Though Businessweek explains that the process of securing funds from an angel investor is somewhat rigorous, angel investors are not financial institutions and often do not require the entrepreneur to personally guarantee a return on the investment. Small Business Notes also explains that angel investors build long-term relationships with the organizations in which they invest, and many can become trusted advisors and confidants for the entrepreneurs they support.
Consideration
Despite a number of benefits associated with angel investors, entrepreneurs should keep a few considerations in mind when accepting angel investment dollars. Small Business Notes explains that angel investors can become heavily involved with the organization, and some may seem more like a partner than an investor. Businessweek also explains that securing angel investments often requires a significant amount of time meeting with the angel to gain trust, explain the business and build a relationship. Angel investors may become privy to intellectual property, and some may offer investments as low as around $25,000 as of January 2011. Small Business Notes also observes that as much as 90 percent of angel investing focuses on small organizations with fewer than 20 employees.
