When you start your own business you will most likely start with money that you invest in your idea yourself. Some entrepreneurs might also look for financial assistance from friends and family, or go into a partnership with someone.
When the cash starts running dry (which it often does) or you want to take your startup to the next level, you can consider approaching an angel investor.
What are angel investors?
Angel investors (also known as seed investors) are wealthy individuals who invest money in startup businesses.
What is the difference between angel investors and venture capitalists?
If you are in search of someone to invest money in your idea, you might have heard of both angel investors and venture capitalists. Here are the key differences between the two:
– Individual investor or a group of investors.
– Invest their personal money into your business.
– Invest in businesses that they believe in, even if it is in the very early stages (seed funding).
– Invest smaller amounts of money than venture capitalists.
– Venture capitalists work at firms that provide funds to young businesses, thus are not individuals like angel investors.
– Venture capitalists invest much larger amounts than angel investors.
– Although they also invest in startups, they usually only invest after other investors like angel investors are already on board.
– Venture capitalists would want to see a track record of your business, and it should be evident that it has a large profit and growth potential.
What do angel investors look for in a business before they invest?
There are many things angel investors will look for in your startup before giving you money. Here are 4 of the most important things they will consider:
1. Your team: Angel investors want to know who is involved in your business and what skills and experience they are bringing to the table.
2. The industry: What is the industry or market you’re operating in? And is there space for a new business (AKA your business)?
3. Success to date: What has your business done and achieved to date?
4. Your business plan: Angel investors want to see how you plan on growing your business, how you will use their investment and what makes your concept unique.
How much will angel investors give my business? And what do they get in return?
The amount of money that an angel investor is willing to invest in your business will depend on how much you need, what you need the money for and how much worth the investor believes your business idea has. Investments can range between a few thousand rands to a couple of million.
In return for this investment, the angel investors will, in most cases, want a share of your business. Both the entrepreneur and investor must agree on the worth of the business and then determine the percentage of shares the investor will get for the amount of money that he or she is investing. In exchange for financial support, you should thus be willing to part with a portion of your business’ ownership.
What else do I need to know?
It is important to remember that angel investors are investing their own money, and are taking a massive risk on your business. Most angel investors would thus like to be involved with the running in some way or another. The terms of their involvement should be something you agree on before you accept the money.
Having an angel investor involved in your business has plenty of advantages. They not only bring money to the table, but also experience, skills and connections. Most angel investors invest in startups for the love of business, more than for the monetary benefit.
When looking for an investor, it helps to look for someone who can mentor you and help to turn your idea into a profitable business.
Where do I find an angel investor to invest in my business?
Traditionally, angel investors were people who invested in startups recommended to them by an acquaintance.
Luckily, the internet has made it much easier for investors and entrepreneurs to connect and establish partnerships.
There are various sites out there that offer introductions between investors and entrepreneurs.
If you are interested in getting funds for your startup, you can have a look at the Angel Investment Network. They do charge a fee to submit your business proposal, but they offer exposure to investors across the world, and, on most packages, you will be refunded if you do not get any investors.