Saturday, December 1, 2012

Angel Investors 101

- Angel Investors 101 -

Find An Angel Investor

For many entrepreneurs, finding start up capital for his/her new business is stressful, difficult, and time consuming. Bank loans, and other traditional sources of funding,  leave new business owners with high monthly payments with even higher interest, not to mention other fees that leave an overwhelming feeling in entrepreneurs. This causes many of these individuals looking for other options to raise capital to start their business.
Funding Alternatives
There are many more options available to fund these new businesses

1. Family and friends
Family and friends can provide a valuable means for entrepreneurs to acquire the first round of funding. This way of collecting capital leaves very little, or no, interest. It can also be available almost instantly. However, one problem with raising capital from family and friends is it can put a strain on the relationship. This can become problematic
This could also create added tension and conflict in the workplace. 

2. Selling equity
Another way in which entrepreneurs can raise startup capital is by selling their equity. This means the business owner  will be giving up a percentage of their business.  This is an expensive way of obtaining capital because the entrepreneur will be losing a large percentage of the ownership of their business.

3. Angel investors

While selling equity and lending money from family and friends are two options, they usually do not provide the full amount of capital needed to start the business. This is where angel investors come into place. To get your business funded by an angel investor, entrepreneurs need to create a strong business plan. 

An angel investor is a good way to fund entrepreneur's startups. Angel investors are usually looking to finance startups and early stage companies. They can be a private investor, working alone, or part of a group of investors. These groups of investors specialize in providing finance in startups and early stage-companies. Most angel investors like to be actively involved in the management of a new company. They also like to provide advice to help move the business forward.

What is an angel investor?
Angel investors are high net worth individuals who are/were successful entrepreneurs and business executives. They use their own hard earned money for investing in seed and early-stage companies that have the potential for creating a profit with quick growth. Angel investors are experienced businessmen. They fund all of the needed capital for your business while providing guidance to success.
They can be the missing part for your company.

Angel investors and equity capital
Angel investors do not work for free. They provide the capital for your business expecting:

1. Capital in exchange for equity shares
Angel investors expect company equity in exchange for the capital provided. This is called a promissory note. This promissory note is converted into a company equity position in the company once the business is officially opened.Most angel investor take15-30 percent equity in their invested company. There is no need for equity.
2. Stock options
Company stocks is another way to exchange for the capital the Angel Investor provided you with.
Common stocks is a way to represent their part of ownership. This provides them voting rights in business decision.  Keep in mind that referred stock holders do not carry corporate voting privileges. The angel investor has a seat on board, giving them the power to postpone the dividend payments they would normally receive from their stock.

3. Assistance of associates
Many angel investors like to have a few of his/her associates help regulate the company operations. This helps the angel investor feel at ease that their invested company is producing maximum profits and fulling their top performance.
There is no need to feel overwhelmed, this added people will help your company.

First-time entrepreneurs should remember that angel investors are one of the best ways to fund your business. They provide immediate funding for the business as well as providing managerial expertise. 

1 comment:

  1. Wonderful piece of work,This provides such a compelling counterbalance and helps flesh out the whole picture through data that isn't Bay Area centric. Angel Investors