Business Angels

How Do Business Angels Finance?

Angels go where venture capitalists fear to tread. We’re not talking about invisible, flying supernatural beings, but everyday capitalists who have been through the trenches and made it out alive. These ex-entrepreneurs are successful, wealthy individuals or groups of investors looking to invest in a business for a set return. The average angel is 50- years old, has a net worth of at least $1 million and invests in companies within 50 miles of home.

What’s the Reward?

Business angels aren’t altruistic, although altruism is a partial motivator. Angels both want to help and to keep their hands in the game. They look for struggling businesses that need a boost, and by helping that business, increase their own net worth in the process. Another payoff is the satisfaction of using their knowledge and experience to help someone along the way. Part of this is paying back into a system that helped them become successful. Granted, most angels know that most of the businesses they invest in won’t make it. But 25 percent of the ones they do invest in pay off handsomely. They are around, but sometimes it's difficult to find Small Business Angels.

What Else is Offered?

Besides funding, angels bring invaluable experience learned from the Hard Knocks School. Knowing how to avoid pitfalls and land mines is knowledge worth more than mere capital invested. Because of this, angels will demand to become personally involved in your business for a couple of reasons. One, they want to insure the best chance of a solid return on their investment, and two, they want and need to be part of the action.

Qualities Business Angels Look For

A good listener

You’ve got to demonstrate that you want their help, not their money by listening to what they have to say and be willing to follow advice even if it contradicts something you think is right. Consider who the success is here, you or them?

Solid knowledge of your business

You must not only be convinced that your idea will work, you must provide solid market research presenting a strong case to convince the angels why it will succeed. The presentation must be short and concise. Don’t assume you have unlimited time to make your case. You don’t. Angels consider their time to be valuable, as should you.

Humility

You must be aware of your weaknesses, else why would you need angels? If you lack humility, angels won‘t play and will fly away. Remember they have made it through the trenches and deserve respect. If you don’t provide it, they go elsewhere.

Knowledge of your competition

Knowing how other businesses in your market and especially your geographical area have succeeded is essential.

Willing Acceptance of the partnership

Entrepreneurs by their very nature have a difficult time accepting someone else into their business and yielding control. Your angel will demand this until your business gets off the ground and provides a return on the investment. Yielding control doesn’t mean yielding total ownership. Retain 51% for yourself.

An agreement in writing

This goes almost without saying. Be sure to include an early buy-out clause should your business take off sooner than expected so you can regain control and be happy.

Patience, Grasshopper

Remember that your business may not turn around overnight, nor should you bug your angels as to why it’s taking so long. Time is a matter of perception. Make sure your agreement outlines realistic turnaround expectations before you sign.