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What our members have to say...
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"This is the best money I've spent so far trying to attract qualified investors.
I've attended several VC and Angel Investor events over the past year to attract investors and this site has attracted the most relevant and qualified investors so far. Thanks! "
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Obtaining Funding from Business Angels and Private Investors
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Businesses searching for capital have several sources to consider including personal funds, credit cards, friends and family, commercial bank loans, grants, angels and venture capitalists to name some of the most common.
Angel Investors
The term “angels” comes from the practice in the early 1900s of wealthy businessmen financing Broadway productions. An angel or private investor is an affluent individual who provides capital for a business in exchange for ownership equity or convertible debt or as a personal loan.
The Center for Venture Research at the University of New Hampshire defines several characteristics of angels: have been self-employed entrepreneurs and business owners, range in age from 40-60 years old, have an annual income between $100,000 to $250,000, seven out of ten invest within 50 miles of home, and nine out of ten provide personal loans or loan guarantees.
While angels often invest in startup or early stage companies, they also invest in high growth businesses in other phases of development. The amounts often range from $25,000 to $250,000 per deal. Because of the level of risk, they expect 20% to 40% rates of return and an exit strategy with a five to seven year timeline. Frequently, they offer more than money. As many are current or former entrepreneurs and business owners, they often serve as coach, mentor and champion, and often provide guidance from the point of view of one who has experience turning ideas into successful ventures.
The Small Business Administration estimates that there are at least 250,000 angels active in the country, funding about 30,000 small companies a year. The estimated total investment ranges from $20 billion to $50 billion as compared to the $3 to $5 billion invested by the venture capital community.
Obtaining Angel Funding
When considering angel funding, it is important to understand what angels look for in a deal. Here are some of the characteristics that angels seek: ventures that grow and scale, strong leadership and management or the ability to install the right team, high rate of return within seven years, innovative or disruptive technology or solution, clear differentiation or competitive advantage, attractive business model and clear terms and exit strategy.
Active investors accept an average of 3 percent of the deals considered. The most common reasons given for rejecting a deal are insufficient growth potential, lack of management talent, lack of information about the entrepreneur or key personnel and insufficient rate of return.
When planning to solicit an angel, consider an advisory board, the management team and your business plan in your approach.
It is not required, but an advisory board that includes a securities accountant and an attorney can be a critical resource. The advisory board can provide contacts with angels, work with the management team to develop a business plan and presentation, and assist with the process and documentation to execute the investment.
The management team is a key consideration for investors. These are the people they are counting on to execute the business plan and achieve their common goals of success. Investors want to see experienced management with a track record of success. A management team comprised of friends and family who are plugged into key positions to come along for the ride is a big turnoff for investors.
The business plan itself should define the reason for financing, how the capital will be used, and a timetable for the investor’s and return and exit strategy. It should include: an executive summary, the industry, the company and its products and services, market research and analysis, the economics of the business (including gross and operating margins and break-even analysis), marketing plan, manufacturing and operations plans, management team, financial plan, and financing plan (capitalization and timetable).
Take your time in forming a relationship with an angel. You are going to be spending a great deal of time together and they may be actively involved in an advisory role. Take the time to assure yourself that this is a person who you are comfortable working with through both the ups and downs of the business.
Becoming an Angel
Maybe you are someone who should consider being an angel investor. Reasons you may want to include the expectation of higher returns, diversifying your investment portfolio, willingness to take on higher risk, staying involved in business, affection for entrepreneurs and community involvement.
One way of getting started is to seek out business referrals through professionals such as accountants, attorneys or advisors such as the Small Business Development Corporation. Another option is to connect with an angel network.
A small but increasing number of angel investors organize themselves into angel groups or angel networks to share research and pool their investment capital. Angel networks typically include five to 125 investors, attract more deal flow, share collective experience during due diligence, and utilize a structured, disciplined approach. North Dakota incentives include a 45 percent investment tax credit to encourage angel investing.
There are currently nine angel network funds that are advised by the Center for Innovation in the state of North Dakota. One must be an accredited investor to participate in such a network in North Dakota. An accredited investor is defined as a person whose individual net worth exceeds $1,000,000 excluding the value of the primary residence or has made at least $200,000 ($300,000 with spouse if married) for the last two consecutive years.
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