Angels - Separating Fact from Fiction

Financing a new business that's just taking off can seem difficult at best. Loans are often necessary for startup capital, but investors and financial institutions often want to see that a business is profitable before they'll agree to lend money. Some individuals can tap into their personal saving or retirement funds and use credit cards to get some startup funding, but that often isn't enough.

Enter angels. An angel is a private investor, generally a successful current or former business owner. Angels have been an important source of startup revenue for many years. Angels often provide much more than simple cash. Their expertise and industry connections can prove quite valuable. They want you to succeed and will work hard to help you do so.

For all their positive attributes, angels should not be seen as smiling benefactors, showering money and advice with no thought of their own needs. Rather, they are shrewd investors who expect a significant return on their investment.

While angels may be good sources of funding for your business, they're also a cautious bunch to deal with. The dot com boom and bust of the early 90s affected business in a number of ways and many angels suffered the effects of that time. Nowadays, angels are just like other investors, in that they want to see data on paper, which means you'll need a solid business plan to present them. They'll also want to see some method of how you plan to repay them for their generosity, so outline a good exit strategy that shows when and how angels will receive their money.

Finding an angel used to be mostly a matter of luck, as they preferred quiet dealings with friends or referrals. They did not advertise their services. This is still the way that a majority of angels prefer to conduct business. However, in recent years angel groups have begun to spring up. It is now estimated that the angel groups handle approximately 15% - 20% of all angel work.

Sometimes you are approached by a possible angel investor. This happens only in rare circumstances, generally when the angel is a friend of a friend. This is often an easier "sell," as the angel's curiosity has already been piqued.

Most of the time, you will have to approach the angel directly. The angel groups generally have a series of specific steps that new submissions must follow. Most often, you will query the angel with a copy of the Executive Summary from your business plan. If your query is accepted, you may be immediately invited to make a presentation, or there may be additional screening steps.

In either case, if you make it through screening, you will eventually have to make a sales pitch in person. While banks are strictly interested in the numbers, angels usually invest in people rather than figures. This does not, however, mean that you can let the numbers fall aside. A well-written, professional, and, most importantly, accurate business plan will be the basis of your pitch. Angels are interested in maximizing the return on their investment. However, you should also expect to spend some time talking about yourself, selling the angels on not only your business concept, but on you as the best possible person to run it.

Angels can be the most important source of obtaining money to start your new business. Often, angels have been in your shoes, having started off their own businesses with the same difficulties, and can relate to the problems you might be facing. That, in itself, is probably your biggest advantage to convincing angels that they should invest in your business. Sell your products and services with a solid business plan, but sell yourself as well, using both financial figures and personality to secure the deal.

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