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Commercial Finance- Angel
Money
Author:
Gregg Elberg
Who are angel investors? They may be an individual, or a group of
individuals with money to invest in start-up businesses in exchange for
various forms of ownership and control of the entity. Many angel
investors organized into organizations or groups that pool their money
to make larger investments and spread the risks of failure among many
investors.
Many start-up businesses borrow seed funding from family, friends and
acquaintances to provide capital to pay the initial expenses of starting
a new company. It is difficult to raise significant amounts of money
this way. Most venture capital firms will not consider investments less
than one or two million dollars. Angel investors fill the gap by
providing risk capital for potentially high growth companies, usually in
amounts of $100,000 to $1,000,000. These investments are extremely high
risk since approximately 8 out of every ten such investments result in
failure and loss of investments. Thus angel investors look for
opportunities that have potential to return over 10 to 20 times the
original investment within a relatively short period of time.
Most startup businesses that compete for angel investor money are in a
pre-revenue stage. As such, they are not eligible for bank financing,
purchase order financing or accounts receivable financing for
exponential growth.
How do you obtain money from Angel investors? The process is difficult.
A due diligence package should be prepared for the angel’s which will
include all details of the start-up company’s organization; who the
executives and board of directors are; their resumes, experience and
academic backgrounds; the business plan for growth; specific details on
the product or services including projections regarding economies of
scale; and an analysis of the potential marketplace for the product or
service; an exit strategy; and an analysis of competition in the
marketplace regarding similar products or services. It is necessary to
create a power point presentation for angel investors with an
enthusiastic principal of the start-up company extolling the virtues of
their idea to convince angel investors this is “the next big one”. The
presentation can occur in a conference room one on one with the angel,
or at a dog and pony show where five to ten prospects make their pitches
to a panel of angels.
What are your chances of obtaining angel investor money? It is about the
same probability of being guaranteed a place in heaven; in brief, it is
not good. Less than one out of ten proposals for angel investor
financing receive funding. Some angel investor groups fund about one
start-up out of every 1000 submissions. Many deals are rejected because
there is insufficient growth potential, or management lacks talent or
skills to succeed, or the product or service simply does not have the
requisite potential for spectacular results. On the other hand, some
deals are funded because the angel has a special interest in a
particular area that the product addresses, such as cleantech products.
How do you find angel investors? One good national listing is http://www.inc.com/magazine/20050701/angels-in-america.htm.
You can also look on the internet for angel investors that are local in
your area. This is important because most angel investors like to invest
within 50 miles where they are located because it is easier to keep on
top of local investments.
Are angel investors really angels? Are they any different than venture
capitalists, just smaller in size? These are very difficult questions.
Some angel investors nurture their offspring more than others. Consider
the statement of Josh Kopelman, a venture capitalist with a new company
called “First Round”. First Round funds entrepreneurs with big ideas in
the $250,000 to $750,000 range. Mr. Kopelman “ sticks with them long
enough to determine which business plans will work and which should be
taken out back and shot” according to the January 21, 2008 issue of
Fortune Magazine.
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OUR
Investors
Angel Capital
