Angel investors are typically high net worth individuals and "cashed out" entrepreneurs who are interested in mentoring other entrepreneurs and sometimes get actively engaged in the businesses they back. Angels pump an estimated $25 billion into tens of thousands of startups annually. In the past, angels have typically operated solo. But in a new trend, angels are forming groups to pool resources and expertise, generate deal flow and create a formal screening process to pinpoint promising prospects. Here are three "must know" tips about finding and approaching angels, from the non-profit Angel Capital Education Foundation:
- Angels are not venture capitalists (VC). Angels invest their own personal funds in a business. VC money usually comes from institutional sources. Angels also back startup and early-stage businesses, while venture capitalists prefer later stage companies. Individual angels invest $5,000 to $100,000, while VC investments go $2 million and up.
- To attract angel interest, be willing to give up some ownership or control of your business, and be able to show a significant return within 3-7 years, as well as a profitable exit strategy.
- Seek angel funding when: a) your product is fully developed; b) you've already invested your own money and exhausted other alternatives (like family and friends); c) you have existing or confirmed potential customers; d) you can demonstrate that the business is likely to grow fast and can pass $10 million in revenues within 3-5 years.
Locate and line up potential angels and angel investor groupsThe non-profit Angel Capital Education Foundation (ACEF) provides educational programs and research for angel investors and helps entrepreneurs as well.
Enroll your business in the Active Capital DatabaseActive Capital is a non-profit that provides the pre-eminent site for entrepreneurs seeking capital, and private investors seeking deals in a secure and protected enclave consistent with investment laws and regulations.
For small sum, tech startup backing, check out Y CombinatorThis unique seed funding group splits its time between Cambridge MA (summers) and Silicon Valley (winters).
Discover details of angel dealsAngelDeals.com is a virtual global network for Entrepreneurs seeking funding and private investors (angels) seeking opportunities.
Crack the angel code with these other sources and solutionsAngel Capital Education Foundation lists these other excellent resources, some national and others regional.
- Angel groups come in many forms, but generally share these traits: Members help screen firms and commit to a certain amount of investments yearly. Groups meet regularly (often monthly) to hear investor presentations. Member angels decide individually whether to invest in a business or not.
- Members work jointly to validate plans, statements and entrepreneur backgrounds.
- While angel group sizes vary widely, the median pooled investment per round is around $400,000.
- Some groups focus on specific areas, such as technology, but most are open to a variety of industry sectors, including software, medical devices, services and manufacturing.
- Angel groups typically look for a management team with proven skills and experience; a unique product or service with a competitive edge, large market and a clear, workable plan; evidence that you've invested substantially yourself; potential for a strong return.
- Once you locate a group, expect a multi-step process that includes an initial application, a "first cut" quick pre-screening to decide if you meet minimum requirements, a full screen that includes one of the member's becoming your champion; a pitch meeting where you present to the entire group; and extensive due diligence.