• What is an Angel Investor? Find Out Today

    Category: Venture Capital Financing


    Yes, “angel investors” are literally agents of blessing – affluent people who invest on start-up business owners. What is an angel investor, one may ask. To some people, they are known as a business angel or informal investor. One thing is certain first of all, they exist in the business world.

    There are a number of websites or business directories which grant a small entrepreneur some ideas of possible financiers for his business. It should be noted though that financial funding provided by “angel investors” is neither pure donation nor charity. The amount invested by these angel investors are expected to be profited from at a later time through debt payment or ownership equity.

    Given such set-up, it must be important for a start-up retailer to ensure that his small business has the makings of a seriously potential success story, as the amount of investment of an angel investor, is dependent on this factor. Compared to venture capitalists that pool together money from various investors, an angel investor, typically invests his own funds.

    The amount given by investors, called the angel capital, is usually used as seed funding for the business to sustain the start-up financial costs of running the business. Usually, angel investors are family and friends of the entrepreneur. Should this not be the case, one thing remains consistent, trust and faith in the entrepreneur is a strong factor prior to the surrendering of the angel capital to the aspiring businessman.

    There is no specific and standard amount prescribed as angel capital. They can range from a few thousand, to a few million. Given such, it is usually expected by angel investors that their “loaned” amount would not yield immediate return of investment compared to most investments.

    Hence, most investors invest their sum of money to “semi-charitable” causes to sort of justify the leeway given to the expenditure. Most companies in the United States do secure angel funding. These companies range from software industries, health care services, medical services and equipment providing companies.

    Since investors enter into a high-risk situation by choosing to fund start-up businesses, they usually require a very high return on investment – typically an amount 10 or more times higher than their original invested amount. Typically, they expect this return in a period of five to seven years. Since they are aware of the potential loss as well, given the “unstable venture,” angel investors require a defined exit strategy from the entrepreneur which includes possibility of public offering or acquisition.

    There is no sure formula in meeting angel investors to invest in one’s business. Oftentimes though, one may expect very wealthy retired entrepreneurs or company executives, to be interested in angel investing for reasons beyond monetary benefits. Commonly, there are types of angel investors who keep themselves linked to an industry they have worked for, as such remains close to their hearts.

    This is their way of maintaining relations and updating themselves of current developments in a specific business arena. Otherwise, their “angel investing,” is something they consider as a form of mentoring another generation of entrepreneurs. After all, should they provide the seed capital, they will inevitably get involved in the project; thereby allowing that they get to use their experience and networks, which somehow yields personal satisfaction and reward.

    Angel Investor FAQ:

    Question: Where can I find a Angel Investor to help fund my expanding business?
    I’m expanding due to a very large increase in sales and orders. Where can I find an investor that wants to gain a large return from investing with my expanding company? I’m currently earning revenue on the daily bases but, 1,500.-5,000. thousand dollar deals are pending and some have to go else wear because I have some but not all the equipment I need. So any leads on investors that might be interested?

    Answer: Good question. Be careful about Angel Investors, you want their money but make sure they don’t get control of your business. You will find out what I am referring to when you start interviewing them. In any event I have two websites for you to check out (inc.com and entrepreneur.com) both have invaluable information for you and will get you started on the right path. Good luck to you. Entrepreneurs will lead us out of the current recession and I hope you are successful in your venture.

    Question: How can I find a startup partner, a business mentor or an angel investor for my startup website?
    I live in hangzhou, China. I have developed a novel website. The website is under internal testing. Now I am preparing for the next stage of my startup website. I need to promote it and run it. I want to find a co-founder (or a startup partner), a business mentor or an angel investor. Any of them is ok. The problem is, how can I find such a person?

    Answer: Well raising capital can be one of the critical issues in running a business. The first stage is to create a details business plan, including costs and projected revenue. Now if you are doing business in China then you will have to find a chinese business partner, this could just be a person in name only, or a real business partner. Otherwise everything from that point will be the same.

    Make a list of potential investors.

    1. Venture capital companies
    2. Possible client companies, ie, companies that would benefit from your business. Eg, an airline would benefit from a business that promotes Hangzhou tourism.
    3. Companion businesses, companies that do something similar but not the same. Something that will mean you business enhances theirs.
    4. Friends and family.
    5. Private investors. Hire a conference room, put adverts in the business press. You do a presentation and so on.

    Question: NORMAL ANGEL INVESTOR CUT?
    What is the normal percentage given to an angel investor on an investment under 100,000? How much and over what time span?

    Answer: Typically too small of an investment for an angel. Normally they get 1/2 or more of the company.

    Question: How do I find angel investors to start a rec center/gym in my city?
    It would be a great investment and a great opportunity. Its just I’m a 19 year old broke kid and wouldn’t look for any profit just a free membership.

    Answer: From my point of view, your chances of getting an angel investor to invest in your business is probably from 1% to 0 even if you have an excellent network You need to prove yourself first. Build up an excellent resume and get some experience to show those angels that you can manage a property without driving it downhill. Remember, it’s also their money. Try putting yourself in the point of view of an investor, would you be willing to lend your money to fund a business for a 19 year old kid whose already broke before he even got started and whose not looking to make a profit from the business?

    Angel investors have very strict requirements. You have to prove yourself beyond doubt that you can give them their money back with an excellent return of investment before they’ll lend you money.

    Question: What is an angel investor?
    How does this scenario work? What do they get in return? How do I find one to help me? Are they allowed to help with a franchise startup?

    Answer: An angel investor is usually a wealthy individual who invests in promising businesses while they are in their “start up” phase. In return for their investment, they are usually given a pretty big equity stake (ownership) in the business, and can potentially make a bundle if they sell their shares or if the company eventually goes public. If you want to find one, it may help to get in touch with high-technology business groups. Where I live, the Chamber of Commerce has events where people starting businesses get an opportunity to pitch potential angel investors.

    They are allowed to help with a franchise startup, but most will probably pass. Franchising will often have restrictive rules on how to properly conduct business. Most angel investors don’t like to be told how they should run a business, because they’re often successful entrepreneurs themselves, and they don’t take kindly to another agency telling them what they can or can’t do.

    Question: Can someone explain the process of finding an angel investor? Is it easier to get funds from the stock market?
    Is it easier to just put out the business in the stock market?

    Answer: Getting investment money to help start a new venture is far from easy. Getting it from an angel investor is extremely difficult (fewer than 4% of all companies that seek it manage to get it); getting it from a venture capital fund is nearly impossible (fewer than 0.4% of all companies that seek it manage to get it); and getting it from “the stock market” is completely out of the question (the requirements to be listed on NASDAQ, for example, are that you already have millions of dollars in revenue and hundreds of existing investors.)

    By far the best way to find an angel investor is by talking to everyone you know, especially your lawyer, accountant or banker. They may be able to introduce you to people who they know make these kinds of investments. There are about a dozen books on angel fundraising for entrepreneurs, of highly varying quality, and many of them are out of date. The best one is “The Definitive Guide to Raising Money from Angels” by Bill Payne, and is available as a download from his website for $37. That’s probably a great place to start, to at least give you an overview of the process.

    Question: Question Regarding Angel Investor yearly returns?
    I live in Canada and I’m wondering what the type of yearly return the average angel investor would require in investing in such things such an apartment complex with greater than 40- units. My second question is, if I was looking for a loan around greater then 1.5 million from an angel investor for an apartment complex, how much interest would they charge me considering I have no assets?

    Answer: I’m afraid that (a) the average angel investor doesn’t invest in real estate at all; (b) the average angel investor invests only $25,000 in a given opportunity; (c) the average angel investor looks for an average of 10 to 30 TIMES return on the amount of money invested (that is; if they were to invest $100,000, they would seek to get back up to $3 million in five to seven years); and (d) the average angel investor wouldn’t consider investing in a deal in which the entrepreneur or promoter does not already have a significant amount of his or her own money already invested.

    So, for all these reasons, it is highly, highly unlikely that you will be able to finance your apartment complex through angel investments. I’m afraid that’s not what you wanted to hear, but that is the truth.

    The Canadian national association for angel investors is the National Angel Capital Organization. A quick overview about angel investing is available on Wikipedia. The official database of angel investment groups in Canada is Angelsoft.

    Question: Does anyone knows where I can find Angel Investors that would invest in mobile telecom service?
    Value Added Service to provide mobile Subscribers with Mobile Content, Interactive Services by SMS, etc.

    Answer: Google “Angel Investor”. There are hundreds of investment clubs and organizations that fund startups. Visit your local chapter of SCORE. Their members frequently have contacts to put you in touch with the right people. Other than network with others who are seeking startup funds. There are literally thousands of high net worth individuals who dabble in startups, but you have to know someone to find them.

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