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.