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For many entrepreneurs trying to raise capital, it can be a good idea to work with an angel investor. However, while an angel investor may sound like the answer to your prayers, an angel investor expects to be confident they are making a wise investment decision before they write a check.
What Is an Angel Investor?
An Angel Investor is an individual investor, generally with a high net worth, who provides capital to early stage businesses. Angel investing is a crucial segment of the business funding universe because they help get start-ups to a point where they can appeal to venture capital and private equity for funding. Angel investors often invest in industries and businesses in which they have specific experience and can offer a start-up more than just money.
Angel investors are a varied lot. On one end of the spectrum, you have wealthy people looking for a new hobby who might expect more “say so” over the daily operations of your business than you’d like. On the other end of the spectrum, you have savvy investors who know how to run a business, have a lot of connections and give solid advice.
What Are the Benefits of Working with an Angel Investor?
There comes a point when tapping friends, family, and credit cards won’t get your business to the next level. The primary benefit of using an angel investor to raise capital is that they have more money to invest than an entrepreneur’s immediate social circle. The most helpful long-term benefit of working with an angel investor is their advice and contacts. Advice on things like which vendor to use or how to market the business can ultimately make you more money and propel the business into the future than the initial investment.
How Can an Entrepreneur Get Angel Investors?
In reality it’s fairly easy to find an angel investor; a simple web search will yield dozens of angel investor lists. The tricky part is to find the right angel investor. Finding the right angel investor requires careful planning and skill.
The main way entrepreneurs try to find angel investors is through face-to-face networking. Nobody is born knowing how to network and unfortunately most entrepreneurs only think about what to say when pitching their company when at a networking event. This learning on the job approach can burn bridges and ruin your chances of finding an angel investor. Also keep in mind that there is no way around the fact that building a network of potential investors and resources takes time. You can go to all the conferences and networking events out there but you’re not going to build a network in a year or two.
Once you get a meeting with a potential angel investor, you need to have a concise and compelling presentation. You only have minutes to make the case for why an angel investor should give you money so every word counts. Don’t make the mistake of assuming all you have to do is describe your great idea, a smart angel investor will “get it” and give you money. A great idea is not enough. You have to show angel investors that you understand the needs of the market, who your competition is, exactly how you’re going to grow the business and how the angel investor will make money from the deal. You also need to think of every question they might throw your way and have ready answers to those questions.
The next step in the process is to negotiate a deal. A few entrepreneurs know the ins-and-outs of negotiation but most don’t. When you negotiated a deal to get money in exchange for a piece of your company you need to figure out how to make it a win-win situation. You need to answer questions like:
- How much of my company should I give away for how much cash?
- Is what I’m asking reasonable? Am I asking too much? Am I giving away too much?
- What, besides money, does my company need?
- What is an angel investor going to expect as return on their investment?
And, you need to do all this while running your business.
How Calkins Law Firm Can Help You Get Angel Investors
Finding, pitching, negotiating with, closing, and building long term relationships with angel investors requires specific skill sets many entrepreneurs don’t have. And in our experience, entrepreneurs who choose to go it alone when finding angel investors are almost certainly destined for failure. You need a business attorney who has “been there and done that.”
Each of the seasoned attorneys at Calkins Law Firm has spent years building a network of connections to help entrepreneurs find the right angel investor for their business. Our attorneys have counseled clients through and negotiated hundreds of deals over the years. We not only help entrepreneurs like you get the angel investment you need but also ensure you get the support and contacts necessary to grow your business.