While bootstrapping can get a business off the ground, most entrepreneurs need outside funding for rapid growth. One popular funding option for startups is working with angel investors who can provide the money needed for product development, expansion into new markets, or other business growth opportunities.
How Angel Investors Work
A deal with an angel investor is the same as a deal with any party investing in your company. You’re giving the investor equity in exchange for money. The amount of equity and money exchanged depends on your investment agreement, which you can negotiate with your investors.
Angel investors typically have a higher tolerance for risk than venture capital firms and other investors. They’re willing to take chances on unproven businesses if they believe there’s the potential for a high return.
Organizations to Help You Find Angel Investors
National and regional organizations exist to help connect entrepreneurs with angels who can invest in your business. One of the largest is the National Angel Capital Organization (NACO), which has over 3,000 angel members. Most connections through NACO occur at the events it hosts, but it also has a database of angels with public profiles that anyone can search.
The First Angel Network (FAN) focuses on the Atlantic Canada region. Start by filling out a funding application online, which FAN then reviews. If you’re selected by the network, you can present at its investment meeting. FAN only allows one company to present at each investment meeting. After that, its members decide if they wish to invest in your company.
Angel Investors Ontario operates, not surprisingly, in Ontario. An application for funding is available online. After you complete the application, the organization’s investors can choose whether to invest in your venture.
Evaluating an Investment Offer
While getting investment offers is exciting, it’s important to look over the terms of any offer carefully to make sure you choose wisely. Consider how much money the angel is offering compared to how much equity they want. If the angel isn’t willing to invest as much as you need, it may not be in either of your best interests to make a deal. Make sure you’re comfortable with how much equity you’re giving up, as there’s no turning back after you’ve handed over those shares.
You should also evaluate the angel to see if they’re a good fit for your business and its needs. Some angels have a hands-on attitude toward their investments, and you both need to be on the same page about how much input the angel is going to provide. Try to find an angel with experience or previous investments in your industry, especially if you’re looking for an angel who wants to work with you on developing your business. It’s easier to work with someone who already understands your industry and who can provide valuable advice.
The right investment agreement could be just what your business needs to take off. When your business is investment-ready, check out a few organizations in your area to find the right angel investors.