Preparing for Entrepreneurship – Establishing Operating Capital for Business Longevity – Week 5
Does everybody wish on occasion that they had a guardian angel? Someone who is looking out for your best interest and can provide assistance when needed? As a business owner, you may need this assistance at various times, because of the unpredictability of entrepreneurship. Enter the angel investor…
Week 5: Angel Investors
Angel investors, also known as business angels or informal investors, are people who provide financial backing for small business startups and entrepreneurs. Recently, they have begun to organize themselves into groups known as angel groups or angel networks, in the interest of sharing research and information. They differ from other types of lending resources in that they generally invest using their own funds. They tend to be less personal than peer-to-peer lending, more professional than having family or friends providing seed money, and more intimate than banks or other financial institutions.
Investopedia.com describes angel investors as “usually investing in the person rather than the viability of the business. They are focused on helping the business succeed, rather than reaping a huge profit from their investment. Angel investors are essentially the exact opposite of a venture capitalist.”
The pros to angel investing is that, if your proposal interests them, then your opportunities can be fully recognized in a very short amount of time. Another is that they are typically willing to accept risk and demand little or no control in return for the chance to own a piece of a business that may be valuable someday. Angel investors,
however, require a high amount of return on their investment, as such an investment is deemed to be high risk; if your business fails to make a profit, or just out and out fails, they lose their investment.
Wikipedia cites the Kauffman Foundation, saying “professional angel investors seek investments that have the potential to return at least 10 or more times their original investment within 5 years, through a defined exit strategy, such as plans for an initial public offering or an acquisition.” Even though it’s a potentially expensive resource,
the depressing fact is that it’s incredibly difficult for a young business venture to qualify for a cheaper venue, such as bank financing or traditional loans.
Below are some great resources for beginning your search for a genuine angel investor:
Inc.com has its own directory for angel investors, as well as a comprehensive guide to finding one:
Angel Investors of Chicago
Angel Investors of Chicago is a local resource for finding (what else?) angel investors located in Chicago. Their page describes them as “an alliance of highly experienced developers and investors dedicated to providing capital to early and mid-stage entrepreneurial companies.”
Gust.com is one of the more widely recognized resources for finding angel investors; they pride themselves on “professional investor relations, from pitch to exit.”
Have you had experience with angel investors? Have you searched for them before? Were you successful? What was the most helpful piece of information that you found in researching angel investors?