In 2007, more than 258,000 angel investors in the U.S. invested $26 billion in more than 57,000 deals. Whether you'd like to become an angel investor or need an angel to breathe life into your own business concept, understanding angel investors basics will bring you closer to realizing your goal.

Angel investors look for opportunities with companies in very early development stages. While technology projects rank as favorites for angel investors, other areas often get funded, too. Most investors in angel financing primarily work with companies they understand and can lend their expertise to. Keep in mind the following about angel financing, which serves as a gap filler for start-up financing:

1. Angel investor transactions typically run between $25,000 and $100,000 for individual angels and up to $1 million for angel groups.

2. Angel investors usually decide within a few weeks whether to fund a project, so entrepreneurs don't wait as long as they would with venture capitalists.

3. In most cases, angel investors prefer dealing with individuals/companies in close physical proximity for ease of hands-on involvement with the new venture.

Action Steps
The best contacts and resources to help you get it done

Learn more about the concept of investment angels

Angel investors, typically wealthy individuals once entrepreneurs themselves, invest their own capital in new ventures. Small business angel investors in networks/groups (about 20% of all angels) pool capital and research to help new companies, thus allowing smaller individual investments in larger projects. Pure in motive, they've grown successful in their own businesses and now want to help others achieve success, but they also expect to make a large return on their investment. Because of the risk to the angel investor, he/she will often require a return of at least 15-20 times the initial investment within roughly five years and an exit strategy consisting of either an initial public offering or acquisition.

I recommend: Learn more about the basics of angel investment from the Go BIG Network which publishes a guide to Angel Investors. The network serves as an online marketplace connecting startups and the small business community. Get more familiar with the Center for Venture Research at the University of New Hampshire, an organization focusing primarily on early stage equity financing for high growth ventures. Through its website, gain access to angel investor market analysis reports, working papers and other publications regarding angel investment.

Link to other angel investors or an angel investor network to take part in larger projects

If you'd like to join in with other angel investors on different projects, look for networks and groups in your area.

I recommend: Start with the Angel Investor Network for listings of angel networks/groups throughout the country. Take advantage of the Angel Capital Association website for research on angel investing/groups. This professional alliance of angel groups offers membership as well as valuable information for investors and on starting an angel group.

Find a business angel investor or angel investing group to help bring your idea/product to fruition

Finding your angel investor may turn out to be as simple as an Internet search. Find angel investors through local business channels like your chamber of commerce or professional networking organizations like Business Networking International, which could also help you link with international angel investors.

I recommend: Consider listing with the FundingPost.com, a large online venture exchange that makes introductions between investors and entrepreneurs. For an initial fee, you'll receive a three-month listing containing your company profile/contact information; investors log in, view summaries and then directly contact companies that interest them. For a large amount of start-up capital, look through the angel investors directory at Gaebler Ventures to find angel investor groups in your state. Study the Tri-State Private Investors Network Tips before pursuing a search for private angel investors.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  Do not sign any agreements without consulting your attorney. You might be signing over ownership of your company to your angel investor.
• •  Look for local investor forums in your state that cater to venture capitalists and angel investors for excellent opportunities to network and find leads on new start ups.

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:

1. 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.
2. 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.
3. 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.

Business.com's "What Works for Business" blog is a great way to keep up with the latest solutions, trends and strategies for starting and operating a small business, including angel and other types of financing.

Action Steps
The best contacts and resources to help you get it done

Locate and line up potential angels and angel investor groups

The non-profit Angel Capital Education Foundation (ACEF) provides educational programs and research for angel investors and helps entrepreneurs as well.

I recommend: Of vital interest is ACEF's directory of angel groups, available free at the ACEF Web site. This is by far the best and most comprehensive listing of angel groups, investors and related resources available anywhere. Check listings by region: California, Canada, Mid-Atlantic, Midwest, USA National, New England, New York, Northwest, Southeast, Southwest and West.

Enroll your business in the Active Capital Database

Active 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.

I recommend: Active Capital grew out of ACE-Net, an angel-matching service that was once apart of the U.S. Small Business Administration. Find out if you qualify to be listed in the database, how much money you should seek, where to enroll and how to prepare and submit your company information. This site is authoritative and offers other resources for entrepreneurs seeking funding.

For small sum, tech startup backing, check out Y Combinator

This unique seed funding group splits its time between Cambridge MA (summers) and Silicon Valley (winters).

I recommend: Get to the Y Combinator site and read up. There's nothing fancy, but if you have a startup idea in the software or web services area and need between $5,000 and about $20,000, step up and submit your idea. These savvy startup funding folks are more interested in good ideas than slick business plans.

Discover details of angel deals

AngelDeals.com is a virtual global network for Entrepreneurs seeking funding and private investors (angels) seeking opportunities.

I recommend: The AngelDeals site has a section for entrepreneurs that lists a variety of other helpful resources. Other sites with similar services and information include The Swap, Capital Connection, Funding Universe, Gathering of Angels, U.S. Angel Investors and FundingPost.

Crack the angel code with these other sources and solutions

Angel Capital Education Foundation lists these other excellent resources, some national and others regional.

I recommend: Listings are free and easily accessible at ACEF.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  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.

You think you have a great product or service that consumers will like. However, you don’t have the financing to market and distribute it. You’ve tried getting loans from banks, but they've turned you down. You’ve tried venture capital firms, but your business is too new. Whom can you turn to? How about an angel investor?

An angel investor is an individual who has a high net worth and can provide angel investing. In return, the angel investor will usually want ownership equity in your company. To find such investors requires a learning curve. Regarding angel investors education and training, do the following:

1. Become familiar with angel investing.

2. Use online databases to find current information about private angel investors.

3. Attend seminars to network with angel investors.

Action Steps
The best contacts and resources to help you get it done

Learn all about angel investing

Before you start pitching your product or service to an angel investor, it's important to know all about what he or she does. In other words, you need angel investors education and training. Angel investors invest in the early stage of a business. Since this stage is very risky, the investor must be willing to take the loss if the venture fails. This is why the angel investor must have a high net worth.

I recommend: You’ll want to go to the website of the Rocky Mountain Innovative Intiative. This organization is an angel investor network that is based in Colorado. It has a great definition of what an angel investor is. You will also learn about membership. Small Business Notes also offers comprehensive information on angel investors, such as their net worth.

Educate yourself on current information about small business angel investors through online database

Angel investors are not as well known as investment banks or private equity firms, such as the Blackstone Group. This is why you need to use online databases to find vital information. You need to find out the angel investor's net worth, the angel investment range and what sector he or she invests in.

I recommend: vFinance has an angel investor network, known as AngelSearch. This network helps you to find the contact’s information, net worth of the angel investor, and the industries he/she specializes in. Active Capital focuses on helping entrepreneurs get the angel capital they need to grow their companies. In addition, this organization helps entrepreneurs on how to prepare meetings with potential investment angels.

Seek training about angel investing through seminars

Another way of meeting angel investors is attending seminars. Topics are informative. Some of the topics you might hear from keynote speakers are angel investing, how to pitch your service or product to angel investors, or is angel investing appropriate for your business. You might want to hear how to structure deals or how to keep your post-investment relationship strong.

I recommend: Angel Capital Education Foundation provides one-day seminars. Angel investors and entrepreneurs attend and participate in delivering information. Georgia Centers of Innovations also have seminars. This organization focuses in the following fields: agriculture, life sciences and aerospace.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  Make sure you keep a database of angel investors. Your database should contain the contact's information, such as name, phone number, industries he or she invests in, and net worth.

Though it may sound profoundly un-businesslike, angel investor is a common term for a philanthropist or other party who invests personal funds in a startup or new business. Angel investors commonly act as the "guardian angels" of new businesses by contributing needed capital just when it is crucial for the business to survive. Knowing some of the key terms regarding this type of investment partnership will help any business involved in or seeking angel investing.

Action Steps
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Startup

A business 'startup' is a business that is being built from the ground up, with little established market share, and generally, not a lot of capital. These businesses often seek angel investors, and vice versa.

I recommend: See more on aspects of a startup at Young Entrepreneur.

Venture capitalist

A venture capitalist, like an angel investor, is a party that seeks to invest money in some kind of business venture to get profit later. Though the role of the venture capitalist is similar to that of an angel investor, some experts identify several key differences, including the general point of entry into a deal, and the idea that an angel investor's offering frequently comes from a 'personal' fund, where a venture capitalist is more likely to have accumulated a larger source of capital from a group of investors.

I recommend: See more on the life of a venture capitalist from the Princeton Review.

Rate of return

The rate of return on an investment is the amount an investor can expect, adjusted to provide a specific amount of profit, from an original investment. Angel investors generally seek a rate of return on their contributions.

I recommend: See more on the rate of return at Investopedia.

Business plan

A business plan is something that angel investors often look at to see if they are going to be involved in a certain startup or business venture. The business plan is a document that lays out a lot of critical info about how a business is planning to operate and what investors can expect.

I recommend: See more on business plans at BPlans.com.

Pitch meeting

The pitch meeting is a 'date' that a startup or business will have with an investor or a pool of investors to get the details out and talk about the possibility of a financial partnership. These are a common part of the experience for angel investors.

I recommend: See more on pitch meetings at Gigaom.

Exit strategy

Another thing that angel investors will generally want is an exit strategy. An exit strategy in business is a plan for allowing investors to opt out of a venture and collect their original contribution plus their rate of return amounts. This is going to be a factor in the success of any venture funded by angel investors.

I recommend: See more on exit strategy at WiseGEEK.