Angel investors are those investors that are specifically seeking to invest in alternative investments like startup ventures or investing in established business’ expansion. An Angel Investors motivation towards Angel Investments is to primarily diversify their investment portfolio by investing in innovative startup entrepreneurs with a basic philosophy: “greater risk = greater rewards”. This is the traditional way at looking at an Angel Investor; however, surprisingly most experienced Angel Investors will look at investments into an Entrepreneur as less risky than investing in shares as with a small business that operates in a sector that they know and understand will provide them with a business platform that they can exploit and leverage their business experience, resources, network, suppliers and investment directly. The rationale is simple, an Angel Investor can control and turnaround a small company from the brink of liquidation, but will not have any control over a blue chip company like Vodafone, no matter how many paper shares they own.
Instead of taking a personal guarantee or loan agreement with interest payments an Angel Investor will invest their own funds and take ownership of company equity or take on some form of debt in the company which can include convertible debt. For larger investments that may cross GBP 250k – 1m, angel investors may band together and form Investor groups and networks known as angel investor groups or Angel Investor syndicates.
Businesses or entrepreneurs that are seeking funding for their expansion will approach these Angel Investor syndicates by sending them their investment proposal. From there, an Entrepreneur or small business will have to pitch their business and an angel investor will decide if there if the entrepreneur is investable. It is important at this stage that entrepreneurs and small businesses looking to raise angel investment understand that Angel Investment deals do not happen overnight. It can take anywhere up to 6 months to structure a single deal as most angel investors will be very busy running several other businesses, and will not place angel investing as a full time occupation. There are many reasons why an Angel investor may choose to invest in an entrepreneur’s small business and most commonly this will include looking for an entrepreneur that they see possesses a fire and a passion to grow their business; that the entrepreneur is willing to do what it takes to make a business succeed and ultimately find the angel investor that chooses to invest in them a good return on their investment, hence the general consensus that Angel Investing is a high risk alternative investment for an Angel investor.
How do you find an Angel Investor?
Now begins the problem. As an entrepreneur that is looking to raise Angel investment you will find it increasingly difficult to approach an Angel Investor that is interested in talking to you as most established Angel Investors will receive over 20 business plans a day. So unless you have been specifically referred to the Angel Investor by a third party that he/she knows you may have a problem locating viable Angel Investors no matter how good you may think your investment proposal is.
Locating these Angel investors by using services like Linked-in can prove to be very expensive, after all, where do you start from in finding an private investor from a database that boast to have 100 million professionals registered to it? Worse still, high net worth individuals are not definable by age, race, creed or region.
A better way is to join a trade organisation or business organisation, and to also attend meetings held by these organisations regularly. The main way to find and locate an angel investor is to talk to everyone in your personal network including friend and family. Ask them – do they know of anyone that may be interested in a potentially profitable venture in your industry?