Difference between Venture Capitalists and Investment Angels

It is true that an investment engine looks at the same factors as a venture capital firm or a venture capitalist when it comes to investing in a business. However, there are differences between the 2. The 1st difference lies in the source of the funds. A venture capitalist invest funds from other sources and money that belongs to other people. An angel investor takes his own money and puts it into the business.

However, the difference between the 2 that is going to make all the difference to your business is that you are more likely to succeed in getting required capital from an investment angel whereas it could be next to impossible to get an investment from a venture capital firm for business start up. The venture capital kind of funding for business startup has almost dried up and is usually only available to businesses that already have a proven track record.

The reason that you stand a better chance of being able to get the required capital from of Angel investor is that you are dealing with a person on a more one-to-one and personal basis. Many investment angels are not driven by profit alone. These people could be interested in the general concept of the business or having been entrepreneurs themselves, by the excitement and the sheer interest that they have in your field of business. Investment Angels also tend to get more personally involved in the business and share its vision and idea for growth. For this reason investment angels are more likely to be persuaded by an entrepreneur’s drive to succeed persistence and motivation.

Hence, it is important to convey a sense of your background, experience and motivation to the potential Angel investor. Your company business plan should be accurate and perfect and address the concerns regarding the growth potential of the business as well as how the angel’s investment s going to pay off.

Even if your business plan gets rejected by the angel investor, he or she may be able to refer you to somebody else who could you be in a position to invest. Whatever arrangement you reach with the investor, be sure to have it referred to and examined by your attorney. Have the agreement written down in writing and make sure it addresses all aspects of the investment such as how long will the investment last, how will you return it, what is the rate of interest to be calculated, how will the investment be cashed out etc. Also carefully detail the amount of involvement each investor will have have in the business and how the investment will be legalized.

Pay special attention to the possibility of the investor turning his current equity or future loans to your business into controlling interest. Such a deal could mean that you lose control of your business in the future.

Finding Business Angel Investors Online

Now there is a way for angel investors to be able to find your business online. There is a website launched by the SBA which helps accredited angel investors find entrepreneurs in need of capital. This online network is known as the Angel Capital Electronic Network, ACE-Net.

This website has a search engine that allows various angel investors to look up the details of the entrepreneurs listed such as the company’s product or service and the amount of financing desired as well as other pertinent information about the business.

Both the angel investors as well as the entrepreneurs must needs certain eligibility criteria to be listed on this website. For example only accredited angel investors who have met income in excess of $200,000, amongst other qualification, are listed on the website. Angels can also place their own description of the kind of business they are willing to invest in and get e-mailed whenever a company meeting those parameters appears on the network.

For more information regarding how you can list your business on the ACE-Net, Angel Capital Electronic Network, and what eligibility criteria you require to meet, you can visit HTTP://acenet.csusb.edu or contact the SBA’s Office of Advocacy at 202-205-6533.

How to Convince Angel Investors to Invest in Your Business

Getting an Angel Investor to Invest In Your Business

Once you have located potential investors who are in a position to give you the startup capital that you require, how do you really convince them to give you that money and clinch the deal. The kind of presentation that you need to make to an angel investor is the same as what you would make to a venture capital firm. An angel investor usually likes to see the following things in a business before she can be convinced to put in his own money.

Strong management. The investor needs to be convinced that the business is in good hands and the business will be handled professionally.

Track record. If you have already been doing business, what has been the track record of the business so far.

Proprietary strength. Propriety does not necessarily mean that you must have the patents, copyright or trade marks on all your products but simply that your product or service should be innovative and interesting enough to develop a strong consumer base.

Window of opportunity. Investors also like to see whether your business product or service is something that it is taking advantage of the lack of competition or demand not meeting supply kind of a situation. If you are a business who is getting into the field where there is nobody is, your business stands to grab the lion’s share of the consumers before other businesses.

Market potential. Investors also like to see the potential for growth in the market as well as the demand. If your business has the potential to grow as a change order franchisee in various locations in different cities and states, the investor is likely to be more interested.

Return on investment. Most of the investors will expect to make a minimum of 20 to 25% over 5 years. However, they may be willing to accept a lower rate if your business is a low-risk venture.

How to Find Angel Investors (Non Affiliated Angels)

Nonaffiliated Angel investors are those investors who are in no way connected to you or affiliated with your business. They usually fall in the following category.

Professionals. Once again, this group of potential investors in your business includes lawyers, accountants, consultants, doctors etc. who you do not know personally or do business with.

Middle managers. Angels in middle management positions start investing in smaller businesses for 2 major reasons which are either that they are bored with their jobs and are looking for outside interest or they are nearing retirement or fear they are being phased out.

Entrepreneurs. This category of angel investors like investing in other businesses and making a profit out of it as a part of their entrepreneurial streak. They are keenly interested in businesses and many times have a keen knack for investing in the right kind of businesses. Entrepreneurs who are familiar with your industry have the potential of making excellent investors by not only bringing in the money but by also providing great advice and bringing in their past experience to the table as well.

How to Seek Non Affiliated Angel Investors in Your Business

These are the methods that you can use to seek investment from nonaffiliated Angels in your business.

Advertising. You can advertise for investors in classified ads in newspapers. Classified advertising is usually inexpensive, simple and effective. If you choose a good business resource and outlet, the results can be quite effective. For example advertising in the business opportunities section of your local newspaper can be a good idea. Using a well know and widely acknowledged business media like the Wall Street Journal can bring in some excellent result in finding angel investors for your business.

Business brokers. Just like a business broker can help you get started with finding a business to buy, he can also help you find hundreds of people who might be interested in buying into your business. These people may be simply interested in investing in your business even if you are not selling it outright. You might have to do a little convincing and dealing with the business brokers in order to have him get you potential investors since most of the business brokers are looking to find businesses that are for sale outright.

Telemarketing. This method had also been called ‘dialing for dollars’. What you do is you get a list of wealthy individuals in your area and then you begin making the calls. You can either make the cold calls yourself or get someone else to do it. One of the crucial factors in this method is motivation and professionalism. You have to be highly motivated to follow this method and at the same time you as the business owner might be the best person to do it yourself and speak to people personally. All you need initially is to be able to set up an appointment with a potential investors by getting them interested enough over the telephone call.

Networking. You can find potential venture capital for business by attending local venture capital group meetings and becoming part of the businesses associations. Making contacts and networking is time-consuming but can also be very effective. Many newspapers contain an events calendar that lists when and where these types of meetings takes place.

Matchmaking services. Even businesses have matchmakers that run a huge variety of services that offer face time with investors to websites that post business plans for companies seeking investment. The fund-raising is largely dependent upon the matchmakers screening process. For example, does the matchmaker have a rigorous selection process or does it take money from anyone regardless of the funding prospects? The thing to watch out here is that a matchmaking service may charge as much as $25,000 to locate an investor in addition to a percentage of the funds raised. Before using a matchmaking service to match your business with an investor, you should get a list of their clients to assess recent successes and failure. A good place to start is Active Capital, a government-sponsored matchmaking service that allows entrepreneurs to raise funds of investors for the United States without having to register separately for each state. For more information visit www.activecapital.com.

Word-of-mouth. It is a fact that most of the business owners find funding and money to raise the capital through their own family and friends and people they know. Even if these people are not directly investing in your business, it is important to spread the word around that you are looking for potential investors in a business. They may further know people who are interested or someone you know would be good at networking and a good source of referrals. Basically you do not know what then of contacts a person you might know has until you spread the word around and wait for the results to filter in.

How to Find Angel Investors (Affiliated Angels)

Investment angels in a business can be classified into 2 main groups. Affiliated and nonaffiliated. An affiliated investment Angel is someone who has some connection to you or your business but is not necessarily related or acquainted to you. A nonaffiliated Angel is someone who has no connection to either you or your business.

It goes to say that it will be easier to find an affiliated Angel to invest in your business since you can fish around the people that you already know or have some connection with, even indirect. An affiliated engine will also have a better knowledge about you or your business and may even be involved in the working of your business such as a supplier or a professional. By having a better knowledge of your business, an affiliated angel will be more willing to invest money.

Here is how you can find an affiliated angel who can invest the required capital in a business.

Professionals

These could be a wide range of people that you deal with such as doctors, lawyers, accountants etc. Since you usually and probably have regular appointments with these people, they know you and probably also know something about your business. If the lawyer or accountant happens to your business account and then they will be all the more intimate with your business details. Such professionals usually have some discretionary income which they are willing to invest in outside projects. These professionals are also often seeking ways to generate interest on their income outside traditional methods. Also, if they are not interested they may be able to recommend other colleagues who might be.

Business Associates

  • Suppliers and vendors
    Your suppliers and vendors are already involved with your business at a certain level. They are aware of the nature of your business and probably understand it as well. They are also closely connected in a related field because the supply you with the products and materials that you need to function. The investment from a supplier or vendor may not necessarily come in the form of cash or capital but in the form of better deals and discounts with their supplies.
  • Customers
    If you have some major customers who deal a lot with you, and appreciate your business product and service, they might be interested in investing in your business because they also believe that it can grow and that your product is generally good. If these customers also use your product or service to make or sell their own goods, they may be interested in becoming more involved in your business by investing in it.
  • Employees
    There may be a few key employees in your business who are keenly involved and believe in the growth of your business. These employees may also feel a keen sense of loyalty and want to become more part of the business. If these employees have access to personal assets and financial resources such as equity in their home, they can be a great source to provide funding for business.

Competitors

Competitors can be an angel investors in a business as long as they do not directly compete with you. A competitor can be doing the same business as you but in another part of the country. They may want to invest in your business out of empathetic reasons or may see it as growing and expanding their own business in other parts of the country.

Angel Investors for Business Startup – Who Are They?

Seeking Angel Investors for Business Capital

Angels was a term that was initially used to describe investors in Broadway shows. However now the term Angels applies to anyone who invests his or her money in an entrepreneur company. The difference between a business Angel investor and a venture capitalist is that an angel invests his money whereas a venture capitalist uses funds and resources from other people.

Angel funding of the business has become more popular than venture capitalists investments because the latter kind is no longer available easily. The venture capital firms that used to hand out money to new business startups are no longer doing it. In spite of the presence of several venture capital firms out there, this kind of funding has dried up. However, you will be pleased to learn that there are other sources which can be tapped into for equity finances which include Angel investors.

These investment angels look to invest in businesses because they feel that they can get a better return on their money by investing in a promising and upcoming business as compared to traditional investments.

Another positive feature about getting funding from a business Angel is that you do not have to look for multimillionaires to get money and capital for the business start up.Angel investors can be normal people with regular incomes ranging between $50,000-$200,000 a year. This means that you can find them with greater ease and interest even the people you know on a daily basis such as associates, relatives, neighbors etc.

Getting Venture Capital For Your Business

Is it Possible to Get Venture Capital Firms to Get Interested In Your Business Startup?

Most of the people, and business startups, when they think of the equity financing to get capital for the business, think of venture capitalists. However, the truth is that this kind of financing is extremely elusive to find in today’s date and time. In fact it is almost impossible to get venture capital for a business that is a startup.

While several venture capitalist firms exist, you are going to need an extremely innovative and interesting product along with a airtight business plan to convince any venture capitalist to give you the required funds. There was a time when the economy was in boom and money could be found from venture capital funds with not too much difficulty. However, it is no longer true. In most circumstances, only the businesses that are established and have a proven track record can expect to get funding from venture capital firms and venture capitalists.

As for business startups, very few will be willing to invest the required capital even if the product is something new, original and innovative and even if the proposal seems to be promising. This is not a reflection on your business idea or concept but simply the way things are now.

How Does Equity Financing Work

What You Should Know When Borrowing Money from Investors to Start a Business

The equity financing involves trading partial ownership interest for capital investment. The more capital a company takes in from an equity investor the more control of the business are you liable to surrender to the investor. This weakens the control of the businesses owner himself. The 1st question to ask is, how are you going to juggle between retaining control and getting the amount of money you require from an equity investor?

You should bear in mind the importance of voting control in a company. An investor may be willing to accept the majority of preferred nonvoting stock rather than the common voting stock. Another option is to give investors a majority of the profits by granting dividends to preferred stockholders. All holders of non-working stock can get liquidation preference which means their 1st in line to recover the investment should the business go under.

Even if an equity investor is willing to take a minor shareholding in the company, he could insist on provisions being added to the contract that allows him to make management changes under certain circumstances. These circumstances include permitting the investor to take control of the company if the business cannot meet a certain income level or makes changes without the investors permission.

An investor may also ask that the preferred stock be up for exchange with common stock or for cash to a specified number of years. This gives the business owner a chance to buy back the company if possible but also allows investors to convert to common stock and gain control of the company.

Many experts advise that giving too much attention to the voting rights of a company is not all that important. It is common for business owners of large companies worth hundreds of millions of dollars to only own 5% or 10% of the company. As long as you are valuable asset to the company and are the key to its success, you are not likely to be replaced. If you’re someone who cannot be replaced easily you have a lot of leverage even though you may not have the majority control of the business. However, this is a risky position and the investors could always decide to bring in someone else who they thinks could do a better job or make them more money. The investor could also decide to sell his share of the business to someone else.

For this reason, you should always seek legal advice when seeking investment in your business from outside. In order to protect your interest in the business and ensure that your position in the business is safeguarded in the future, careful legal advice should be sought as to the kind of contract you want to draw for the investor.

Equity Financing for Business – Finding Investors and Venture Capital

Funding a Business Startup with Equity Financing – Borrowing Money from Investors

Whenever you seek funding for your business, the money comes in two major forms, debt financing and equity financing. In equity financing you get the required capital in exchange for part ownership of the business whereas in debt financing, capital is received in the form of a loan which has to be paid back with interest. In this section we will discuss equity financing for business, where can you get this kind of funding for your business and the things to know and remember before seeking money from external resources for your business.

Basics of equity financing

Equity financing can come from various sources including venture capitalists and private investors. Depending upon the nature of the agreement as well as the legal structure of your business, the share of the business that is given to the equity finance a can be in various forms. If your business is a Corporation, then you can give the investor stocks in your company. If it is a partnership, or the investor wants to become involved in the management and running of the business, he could come in as a partner.

The 1st thing to be aware of when getting funds from external sources for business is you could be playing to retain managing control of the business as well. It is a good idea to use as much of your personal resources as possible to fund the business so that the share of money that you borrow from other resources is as limited as possible. The less money you invest from your own resources and the more you borrow from someone else, the more likely it is that the person investing in your business will want a controlling share. This could mean that you will end up using the control of the business that you started. It is a good idea to add as much value as you can to the business yourself before looking for financing elsewhere.

The 2nd thing to be aware of when looking at equity financing for your business is that you should be careful in selecting the person who invest in your business. Do not treat the 1st person who shows interest in your business as your lifeline and go with it. A wrong investor could withdraw his support from your company and business at a crucial time and end up destroying it. It is important to ensure that the investor not only understands your business but also agrees in a written contract to continue support and investment for a certain period of time. This gives you assurance that you will have the required support from the investor for the time that it takes for you to finish with the crucial business start up stages and give your business a fighting chance to succeed.