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How to Attract Angel Investors
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These days, it’s harder than ever to get a small business loan (or any kind of loan, for that matter). Since the housing bubble burst and just about every lending institution under the sun suffered from it, securing a loan has been like forging a path through a section of Dante’s Inferno. And with the S&P releasing a report that states the U.S. is in trouble of losing its triple A rating, we could be facing a lot more trouble in the future where all types of lending are concerned. In short, the intrepid entrepreneur may soon find himself without a prayer of securing the funds needed to start a business, no matter how genius the concept or how sound the plan. But if a prayer could do the trick, perhaps angel investors would come to the call. If you’re looking to start a business, keep it afloat, or take it to the next level, angel investors could provide the answer you’re looking for. But what steps can you take to attract them?
First, it would behoove you to know what, exactly, angel investors are (and what they’re looking for). They are a type of venture capitalist that often provides added value over others in this category (since most venture capital comes from firms of investors). Anyone can become an angel investor provided they are recognized by the Securities and Exchange Commission as an accredited investor. This requires a net worth of $1 million or an income of $200,000+ per year. Once a person has met or exceeded these criteria, he then becomes an angel investor by putting money into a fledgling business, like yours. But because angel investors often have some kind of industry experience, they are willing to provide advice and guidance along with their money, significantly sweetening the deal for you and effectively hedging their bets. So what are these virtual fairy godmother’s looking for?
It starts with a solid business plan, which is really the first step towards securing any type of investment. You need a product or service that is in demand, unique, or more likely, both. You’ll need the research to back up your claim that people want what you have to offer, as well as a way to protect it from the competition (through patents and such). If what you’re offering is a product, you should probably try to get a prototype in place before you approach investors, and having a focus-group test under your belt couldn’t hurt, either. Also, you should think about what you bring to the equation. Yes, you have a product, but are you willing to take the financial risk on it? If not, you shouldn’t expect others to just hand over their money.
Now that you’ve got everything in place, you need to find the right investor. There are actually millions of these people investing billions of dollars every year, but you need to locate the select group that might be interested in your particular business. You should start by approaching community members who are related to your industry. Many investors like to give something back to the community that supports them and they often prefer a field that they have experience in (especially from the standpoint of mentorship). Next, you’ll need to find investors who are interested in your stage of business, whether you’re just starting or looking to expand. Once you have found the right person (or people), work on forming a personal relationship (the lawyers can see to the details). This angel is not only making an investment in your company, but also in you, and they’re going to want to nurture that investment. If you’re wise, you’ll let them.
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