Many entrepreneurs and savvy business owners start their adventure with a great idea, an excellent plan, and the passion to turn it into a profitable business. However, they are often missing one very important thing – money. If that sounds like you, it might be time to find an angel investor. So, who are these mysterious small-business saviours?
What is an angel investor?
An angel investor is a private lender, or someone who contributes their personal equity to early-stage or startup companies – typically in exchange for shares. The amount of their investment varies, but is customarily used to cover things like market research, product development, or marketing and advertising. Angel investors are generally wealthy, with extensive industry knowledge and experience. While they’re often happy to impart advice or make introductions to other professionals, they don’t usually get involved in the day-to-day operations.
How does angel investment work?
A contribution from a single angel investor ranges anywhere from a few thousand to a few million dollars. Because they use their own money, ‘angels’ face significantly higher risks than, say, a venture capitalist, who manages the pooled money of others in a professional fund. For this reason, they expect a much higher rate of return than would be given to more traditional investors. In saying that, they tend to offer more favourable terms, and, unlike traditional lenders, don’t expect you to pay back the investment if your business fails.
Before they invest, an angel investor will want hear your pitch, review your business plan or pitch deck, and see a prototype or model of your product or service. Most importantly, they want to be convinced of the potential for a solid return. Because they won’t know the first thing about your company, this is your chance to dazzle them with clear and well-thought-out financial projections.
Forecasting tools, such as Cash Flow Frog and Float – which integrate seamlessly with accounting software like QuickBooks Online – automatically analyse your financial data and help you generate accurate cash flow forecasts. These, along with your profit and loss, and balance sheet, will help you make your case.
Where to find an angel investor
There are a few different ways to find an angel. Often, angel investors are found via word of mouth or through introductions from other entrepreneurs, friends, or colleagues. But you can also check online – for example, Angel.co and Angel Investment Network exist solely to connect budding entrepreneurs with angel investors.
Finding an angel investor could be the lucky break your startup needs, but getting one onboard will be no small feat. Do your research and come prepared to find the right one for your business. For more helpful tips and valuable advice for entrepreneurs, check out these resources.