Private Investors

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Are you looking for a private angel investor?

Private angel investors are a common source of funding for early stage and startup businesses.  In fact, angels provided more funding to small business than venture capitalists, according to the Center for Venture Research.  Occasionally, private investors will do bridge financing or later stage funding as well. 

Who are these private angels?

There are several categories of private angel investors.  Some invest passively.  That is, after they have providing the company with funding, they play a very limited role in the company.  Many times these angels are professionals in medicine, law, real estate, or other fields and they lack previous business or entrepreneurial experience.  Other angels invest as much for intrinsic motives as they do financial ones.  They may be seeking to use the network and experiences they have acquired or to live vicariously through the entrepreneur.  This type of angel may want a seat on the board and control of some decisions.  Other angels prefer to serve in an advisory or coaching role.  The last class of angels is called “superangels” because they can invest a large amount of money.  Superangels may invest over $1 million in a single deal. 

All of these angels invest private money, which is perhaps the biggest distinguishing factor between angel investing and venture capital.

 

Helpful Hint

Keep in mind that the angels that require the most equity are generally the ones that can provide invaluable contacts and advice based on their experience.  If this is your first startup in some particular industry, the contacts and advice can be the difference between success and failure.

 

How can you find a private angel investor?

The best way to find a private angel investor is through your personal contacts.  If you do not know an angel personally, alert your friends that you are searching for an angel investor.  Angels have more confidence in people they know, so the fewer degrees of separation between the entrepreneur and angel, the greater the chance of a deal being done.  Usually private angels prefer to invest close to their homes and in industries with which they are familiar.  Therefore, local industry conferences, networking associations, or chambers of commerce may be able to point you in the right direction.

Another resource for finding private angel investors is the internet.  Many private investors have joined angel groups that have websites.  The Angel Capital Association contains links to many of these groups.

The Startups.co Network

In addition, The Startups.co Network (www.Startups.co) connects angel investors with entrepreneurs in a personalized fashion.  The Startups.co Network is an on-line marketplace that connects the startup and small business community including job seekers, investors, advisors, and startup companies.  Membership is free, and with a subscription, entrepreneurs have the ability to browse the contact information for a large number of investors or search for them based on industry, location, and preferred size of investment.

Alternately you can post a “Request” on the network, which allows you to describe your business idea.  The idea of request is like a classified ad in your newspaper.  Targeted investors browse these ads when they are searching for deals. 

At the very least you should create a quick profile of your company which will allow you to indicate that you are looking for funding (it’s free and it only takes a minute).  When you do this, investors looking through company profiles will have the ability to see your description of your company.

Angel Funding or Venture Capital

First you need to decide on the amount of funding necessary for your company.  It is important that the amount of money is not arbitrary, but rather a calculated number.  This is because investors will be interested in the specific use of funds they provide.

If you need $1 million or less, you will have a better chance of securing angel funding.  Some venture capital firms fund lesser amounts and many angel investors cannot provide $1 million, but this varies by angel and venture capital firm.  If you are seeking several million or more, you should approach venture capitalists.  Some superangels and angel investor groups pool resources to put together deals of this magnitude, but these are the exception.

Different investor perspectives

Private angel investors usually have a different approach to their investments than venture capitalists.  They tend to allow longer a longer timeframe before they expect a return and may be more flexible on the terms of a deal.  For these reasons many entrepreneurs prefer to find angels if possible. 

Keep in mind that angel investors assume high risk when they invest, and therefore expect a high return.  They want to see their investments succeed, and many times they get heavily involved in order to increase their chance of success.  A private angel and the entrepreneur need to be very clear on their roles before a deal is closed.  Conflicts can arise quickly if an entrepreneur feels he has no control or an investor feels he cannot influence big decisions.

 

Summary

If all you need is a little bit of cash to be on your way, then perhaps looking to your friends and family is the way to go.  However, if you think what you really need is a partner to grow this idea to the moon, it may be worthwhile to pursue a professional angel investor as not only a source of funding, but also a mentor.  Venture capitalists usually do not get involved until a company has significant traction and a proven business model.