This is a Q&A session, where we answer the question sent in by Bill Parravano about “Angel Financing”.
His question is: “What is your approach? How do you approach an angel investor? How do you find angel investors? What do you need to have prepared when speaking with them?”
An angel investor is typically a past entrepreneur who has high net worth and wants to invest in ideas, management and things they believe in. The size of angel investment can be from $5,000 to $10,000 to up to $2 million. Know that, angel investment is not just a typical financing arrangement for getting returns on investment. It carries with it some mentoring, advice and control. Angel investors come together as groups to form angel investment groups. They make decisions as a group but the investment is done on an individual basis.
Finding Angel Investors
Search for them online and you will come across different associations of angel investors.
Angel Investments vs. Venture Capital Investments
- Source of Funds: Angel investors use their own money whereas venture capitalists use institutional money or pool money—the money available from people’s pension plans and other investments.
- Timing: Angel investors invest in the early stages of the business to fund, build and grow them. Venture capital investors come in at a typically later stage.
- Size of Deals: Angel investments can be as low as $5,000 and venture capital investments are usually above $2 million.
When to Go for Angel Investments
- Be Prepared: Go for this option if you are fully prepared on your part.
- Willing to Give Up Equity.
- Willing to Take Advice.
- Have an Exit Plan.
- Product Development: At least have a proof of concept for the product.
- Exhausted Other Resources. The entrepreneur has invested and has no other resources.
- High Expected Growth.
- Have a Business plan.
Other things Angel Investors Look for
- Strong Management Team with Experience.
- Uniqueness of the Product/Service.
- Personal Investment.
- You Understand the Numbers.
Angel Investment Process
- Application: A formal application needs to be submitted or possibly just an Executive Summary.
- Pre-Screening: Investors look at little more details on the business, plan, concept and product.
- Screening Process: The group of investors will review the business plan in more detail to dive into the business.
- Investment Meeting: This is where you will have to put up a pitch and present your business, concept, risks, returns, opportunity and industry details.
- Due Diligence: Investors will dig deep into the details to verify them so that everything is real and reasonable.
- Term Sheet: The parties will sit down and come with a skeleton agreement on what they are willing to do, what they want and how they want it to be structured.
The Expected Reality
Expect a lot of rejections because your business might be great but investors might not feel that it is for them. Make sure to learn from the rejections so that you are able to fix and tweak your business as you move along. Asking for references and understanding what those particular angel investors are about will help you.
Let it be known that you also want guidance and not just money. Money will come along with guidance. Communication is important so share your story. Be transparent and honest upfront in what you present.
If you are at the right time and place, with the right groups, for the right reasons, angel investment will prove to be a great resource for you to finance, grow and take your business to the next level.
ABOUT MEL ABRAHAM
Mel is the founder of Business Breakthrough Academy and Thoughtpreneur Academy where he helps entrepreneurs bring their businesses to the world and build the lifestyle that they want. Mel is one the most sought after entrepreneurial mentor and strategic thinkers of our time. Unlike many other so called “business coaches”, Mel has lived everything he teaches and continues to do so. Mel has built, bought and sold numerous multimillion-dollar businesses for himself as well as his clients. As the author of The Entrepreneur’s Solution: The Modern Millionaire’s Path to More Profit, Fans & Freedom Entrepreneur, Mel’s strategies have helped build thousands of businesses and have generated hundreds of millions of dollars for his clients, ranging from large corporations to startups and small family-owned businesses.
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