When a startup company is in need of early-stage financing, angel investors are a great way to get funding. A venture capitalist can provide early-stage financing as well for a startup business. Venture capital is best suite for startups that are in need of at least $2 million or more. Venture capitalists prefer to invest in large amounts of money if the startup company has high growth potential. This is perfect for those who need capital but do not meet the requirements of a venture capital firm. If your high growth startup business needs $2 million or less in venture capital, angel funding is right for you.
Angel funding can help your company gain the momentum it needs to qualify for funding. Before you approach an angel investor, it is important to learn how they work. Keep on reading to find out how to find them, what types of businesses angel investors invest in, and more.
What Is an Angel Investor?
To put it simply, angel investors are people that invest in an early-stage company before the qualify for venture capital. These companies are startups who have potential to grow and will provide an investor a high return on investment which is what they seek. Venture capital is not always the preferred choice by a business owner and will seek angel investors instead.
Angel investors are also known as accredited investors. They invest in businesses individually as a part of an angel investor group. To be an accredited investor, the angel investor needs to have a net worth that is more than $1 million for the last 3 years. They can also qualify if they have an annual income of at least $200,00. To be accredited, they need to go through the Securities and Exchange Commission.
When you are seeking angel capital, you must make sure that you are dealing with an accredited angel investor. Accredited investors have significant kneaded of angel investing and the risk associated.
They can help you with hiring employees, marketing, advertising, accounting, bookkeeping, building a customer base and more.
What Are the Requirements for an Angel Investor?
An angel investment is private equity which is capital invested in private companies in exchange for a percentage of ownership. A business owner needs to give up some of the ownership to their business if they are seeking an angel investor. The goal of an angel investor is to make a cash investment early so they can take part in the growth of the company. They want to have the biggest return possible meaning that they need to invest in startup companies as early as possible.
Angel investors invest in various types of businesses and industries, there is no specific type. The most important factor for them is the high growth potential.
What You Need to Apply for Angel Capital
Before approaching an angel investor, you should be prepared with a business plan and investment summary. The investment summary has answers to all of the questions an angel investor should have in a concise form. A business plan is longer which explains the full picture of how the business is going to operate, how money is going to be made and how they will get the return on investment.
The following components should be included in the proposal:
- The product or service explained.
- An overview of industry growth.
- Relevant information on your experience and background.
- How the business will make money.
- What kind of return the angel investor will have.
The investment proposal and business plan should be used to develop a pitch which should be about two minutes or less. It is crucial that you master this pitch so that it is the first thing you say to a potential investor when you meet them.