In the book, Write Your Business Plan, the staff of Entrepreneur Media offer an in-depth understanding of what’s essential to any business plan, what’s appropriate for your venture and what it takes to ensure success. In this edited excerpt, the authors discuss angel investing as an option for funding your business.
If you're having trouble getting funding for your venture under the right terms, or under any terms at all, you’ll be glad to know about the existence of angels in the investment world. Angels are individuals who invest their own money, as opposed to institutions or professional money managers, who invest other people’s money. Many angels are well-off professionals, such as doctors and lawyers. Some are retired but have tremendous expertise to share in a specific field. Others are successful small-business owners who have made a bundle with their own entrepreneurial efforts and are now interested in letting their money work for them in someone else’s venture.
Angel investors used to be a difficult group to find -- not so any longer. There are groups formed by angels and other organizations, such as Funding Post, that arrange for special angel and venture-capitalist showcases in various parts of the country. You can sign up and pay to attend an event at which up-and-coming entrepreneurs like yourself get to meet with many angel investors and VCs in one place. Have your short elevator pitch ready, and demonstrate the enthusiasm you have for your new business.
Because angels invest their own money, you might think they are the most discriminating, difficult-to-please investors. In fact, as a rule, they're much more willing to take a flier on a risky, unproven idea than are professional investors and lenders.
Angels often take a personal interest in a project and may simply believe strongly in the person behind it ... that’s you! They're usually swayed more by personal concerns than by financial ones.
While angel investors used to be located primarily by word of mouth, they're easier to find in the electronic age. ACE-Net is an electronic network of angel investors developed by the SBA that helps angel investors and small businesses seeking capital meet online. There's an annual fee to enroll in ACE-Net, which varies by state. You can also find the ACE-Net branch in your state on the website. The Angel Capital Association is another place to learn about angels and seek out an angel network—a local group of angel investors in your area.
Keep in mind that, above all else, angels are unconventional. Many have little training in evaluating business ideas. If 20 angels turn you down, it doesn’t mean a thing. Until you’ve gone through the last name in your Rolodex, you still have a chance of landing an angel backer.
You may also fit angel guidelines if you don’t need a whole lot of money. Institutional venture capitalists can, by pooling the funds of several different groups, raise vast sums. It’s not unheard of for venture capitalists to invest nine-figure sums—more than $100 million—in relatively new, unproven ventures. But even rich, single investors like Bill Gates or Warren Buffett are unlikely to feel comfortable sinking that kind of money into anything uncertain.
Your angels’ capacity will vary, of course, but angels tend to start small and see how you're doing before adding to the pot. One of the nicest things about the angel networks that have formed in recent years is that they can pool their resources, giving you a few angel investors in one place at one time. This also makes it easier when you're preparing to meet with angel investors. Rather than meeting one at a time, you can meet several in one angel network or even a couple who'll spread the word among their partners so that they can decide as a group.