I was talking to a couple of young recent college graduates who expressed their desire to attempt to create something out of nothing, just an idea, instead of going directly to the corporate workplace.
The youth of today have entrepreneurial opportunities available that others only dreamed about a decade or two ago. The baby boomers were not an entrepreneurial bunch, largely joining corporate America if they were able to land a job in the stagflationary period of the ’70s and ’80s. Very few entertained thoughts of striking out on their own. Fast forward to today’s economy where the tools needed to start a business have never been more abundant.
Capital, technology, location and almost whatever else you need are available for the taking. However, like in any era, the tools continue to improve, but it is that entrepreneurial spirit of the owners that will inevitably be responsible for success. Start-ups and financial capital are alive and well.
The question that we will attempt to answer here is how to obtain the needed capital via the route of an Angel Investor. An angel investor is an affluent individual or group who provides capital for a business start-up, usually in exchange for some kind of debt or ownership equity. Angel investors usually give support to start-ups in the initial phase when most investors are not prepared to back them. Here are a couple of stats that should get you excited.
- The number of U.S. angel investors grew 16%, to 334,565, last year, and they invested $23 billion in 66,110 ventures.
- Angels strive to invest in innovative companies with the potential to grow to hundreds of employees and $50 million in sales within three to seven years of starting up, according to the Angel Capital Association.
If an Angel sounds interesting to you, take a look at some of the following tips that might help you decide if this type of investor is good for you.
Research Angel Groups: It is estimated that there are some 400 angel groups alone in the U.S. and you can find them in the Angel Capital Association’s membership directory. As you have seen on TV’s Shark Tank, an important consideration of selecting an angel group is the relationship you will have with them. Check an angel’s references by talking to the last couple of entrepreneurs who have done deals with that angel, suggests Jeffrey Sohl, director of the University of New Hampshire’s Center for Venture Research.
Consider More than Cash: Before you pitch to an investor, do your homework, which means you should not only understand the role of angels and their considerations but how your company might benefit from their individual experiences and connections. Angels often provide strategic advice to management. They may, for instance, help you break into new sales channels or vertically integrate your operations by striking deals with suppliers and distributors.
Have a Track Record: This is the part of Shark Tank where the entrepreneur has given the pitch and is about to close, when Mark Cuban asks them what their sales numbers are. Their response is that they have no sales yet. Cuban and his compadres hang their heads in wasted time. Revenues and profits are obvious metrics, but entrepreneurs can also show that there’s a strong market for their goods or services by identifying pilot or beta customers. I have used beta customers and can tell you first hand it works.
Money is great and of course, needed. Angel investors are certainly an option. However, before you sign on the dotted line, ask yourself one big question…can I work with someone else owning a part of my business?