Angel investors are essentially wealthy individuals who can provide capital funding for a business. Raising money from Angels is a bit different than raising money from venture capitalists or other professional investors. While venture capitalists are more focused on traditional business plans and projections in determining whether to make an investment (e.g., capital structure, projected returns, management team, intellectual property, marketing plans…), Angels are often more interested in the story and people involved. This is not to say that Angels ignore business plans. In fact it is quite the contrary as most Angels are seasoned business pros and expect to see nothing less than excellence in a well thought through business plan and execution. Don’t underestimate them - they will usually require detailed financials and a clear projection on investment returns, but in and of itself, that is not enough – there needs to be a compelling story. When pitching to a potential Angel, know who they are, how they made their success, and what (in addition to an investment return) their motivation is in making the investment. Many Angels are looking for a way to build their community and/or aid society – either through giving younger entrepreneurs opportunities for success or in helping a business deliver a product or service that ultimately benefits society. Give them this story. If desired by a particular Angel, give him or her the opportunity to live vicariously through you in your business growth. Allow them to relive their entrepreneur past through you.
The chief benefits of Angels over other types of investors are obvious - i.e., it is a source of cash with less issues of control and a wealth of wisdom. The worst thing that a business owner can do when approaching an Angel is to discount this wisdom aspect. Respect it; tap into it; use it for your advantage.
My business law firm has helped several clients both find Angels and prepare presentations to Angels. It is one more way that we partner with our clients.
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Also see:
Private Equity V - Raising Capital and Not Telling Lies
Private Equity IV - Angel Investors Get Picky
Private Equity III
Private Equity II
Private Equity I
