Finding an Angel Investor in a Day - Joseph R Bell

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Source of investment dollars Personal assets Other people’s money; institutional funds Investment range $25,000–$2,000,000 $5,000,000+ Expected return 3–10 times original investment 5–10 times original investment Typical stage of investment Seed, start-up, or early High-growth start-up and expansion What they bring to the deal Early funding and hands-on expertise Large amounts of money, team building, industry-specific strengths Extent of due diligence (See pages 131-136 for more on due diligence) Some to significant Significant to huge amount Will they replace founder as CEO? Less likely More likely Number of deals 1–3 per year 15–18 per fund per year

       The Funding Gap

      As the chart above reveals, there is a gap between the largest average sum an individual angel will offer and the smallest average amount a venture capitalist firm will invest. The gap begins at $500,000 or less and goes as high as $5 million. This funding gap is often filled by angel groups, who are able to invest higher sums than individual angels but less money than the average venture capitalist. Companies that fall into the funding gap may have a harder time raising money than companies on either side.

      When in the life of your business is it the right time to approach an angel investor—and when is it better to approach a venture capitalist? This chart shows the typical business stages that angels and VCs invest in.

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      2

       STEP 1: What an Angel Investor Will Do for You

       STEP 2: How to Find an Angel Investor

       STEP 3: Make Yourself a Good Catch

       STEP 4: The Pitch

       STEP 5: Valuation

       STEP 6: The Term Sheet

       STEP 7: Due Diligence

       STEP 8: After the Deal

      Accomplishments

       In this Step you’ll:

        1. Learn how to use networking to locate potential angels

        2. Discover where else to look for angels

        3. Learn how to evaluate prospective individual angels

        4. Discover where to find angel groups

        5. Learn how to evaluate prospective angel groups

      Time-Saving Tools

       You’ll complete this Step more quickly if you have any of the following handy:

       1. List of your business, industry, professional, and social contacts

       2. List of associations in your industry

       3. List of trade journals, to look for conferences and contacts

      Step 2:

      How to Find an Angel Investor

      QUICKTIP

      More Is Better

      The expression “Don’t put all your eggs in one basket” holds particularly true when you start looking for an angel investor. Having multiple parties interested in your business makes it more attractive to investors and gives you leverage when negotiating the terms of the deal. Cast your net wide and look for a number of individual angels and angel groups simultaneously.

      Ten years ago, tracking down an angel investor was difficult if you didn’t live in the Silicon Valley or Boston’s Route 128 corridor. Even in those locations, it was a case of “who you knew” through business or social connections that led to finding an angel. Today, the angel investor universe is more mature and structured. There are active angels across the U.S. in communities of all sizes, from Chippewa Valley to Chicago. If you have a good concept—and a willingness to do a little research—you can find an angel.

      But finding the right angel is as important as finding an angel. It helps to know what to look for when angel hunting. As you begin your search, the first thing to look for is an angel with sufficient funds to invest in a relatively high-risk venture (as any new business is). But money isn’t everything. Most angels invest only in local companies, and you’ll need to have a number of face-to-face meetings both while trying to secure funding and once you have an investor. So look for angels who are geographically nearby. Next, seek angels who come from the industry in which your business is operating. Angels who have worked in your industry are valuable because they offer firsthand experience and expertise that you can use. Since they are already well networked, they can provide introductions to potential customers, partners, vendors, and suppliers. They’re also more likely to understand your business concept and its potential.

      Who Can Invest

      in My Company?

      Before approaching an angel, you’ll need to determine whether they have enough money to invest in your company—and, just as important—whether they can afford to lose it. Imagine if you were depending on an infusion of cash to start manufacturing your first product or to launch your website and your angel couldn’t come up with the promised funds. All your hard work, and your company, could go down the drain.

      One way to reassure yourself about a potential investor’s financial

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