Playing an Angel

Even when the financial arena is dealing nothing but bum hands, angel investors can be the wild card that puts you on top.

Raising money ranks right up there with root canals and tax audits as one of those not-so-fun, yet necessary, activities in life. And the dotcom bust, tumultuous money markets and slowing economy certainly haven't made the money hunt any easier.

But that's the bad news. The good news? "There's definitely money out there, and companies that have good business models and combine that with great management teams can certainly get capital today, from both angels and VCs," says Brian Hill, co-author of Attracting Capital From Angels.

The tough part, of course, is getting the money. But experts offer a few tips to help ensure success. First, you have to network with everyone you know, such as family, friends, your lawyer, the neighborhood grocer--anybody who will listen to you talk about your idea. You'll also need to perfect your elevator pitch; two minutes is probably the most time you'll initially get with an angel.

And the companies with the best chance of obtaining angel funding in 2002 are those that already have a product or service on the market or are very near marketability. Those whose companies have made it to the break-even point have an even better shot at growth capital, say experts. So if you're in the early stages of a start-up, you're probably not going to get angel financing just yet--you need to be a bit further along.

Why? Investors are looking for entrepreneurs who have gone back to the bootstrapping way of starting a business--entrepreneurs who have used their own seed money, created a business plan, acquired customers and set up distribution channels. "[Many entrepreneurs] are thinking about doing those things, but they want to get someone else's money to go try it and see if it works," says Cal Simmons, co-author of Every Business Needs an Angel. "I would much rather talk to an entrepreneur who has already put his money and his effort into proving the concept. And I think most angels I know feel the same way right now."


Winging it

For more information and leads to angels, check your local chambers of commerce, SBDCs and other small-business groups as well as the following Web sites and books:

1. Every Business Needs an Angel: the official site for John May and Cal Simmons' book is www.everybusinessneedsanangel.com

2. The Capital Connection: a collection of funding resources and expert directories

3. Angel Investing: Matching Startup Funds with Startup Companies--A Guide for Entrepreneurs, Individual Investors and Venture Capitalists by Robert J. Robinson and Mark Van Osnabrugge

4. Financing the New Venture: A Complete Guide to Raising Capital From Venture Capitalists, Investment Bankers, Private Investors and Other Sources by Mark H. Long

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This article was originally published in the May 2002 print edition of Entrepreneur with the headline: Playing an Angel.

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