An angel investor can help a startup company who needs financing at an early stage. Early-stage financing is also provided to startup companies by venture capitalists. However, the difference between venture capitalist and angel investors is that a venture capitalist prefers to invest in large amounts who have high growth potential. If your startup company needs less than $2 million in venture capital, angel funding might be best for you.
Angel funding can serve as a bridge to get money from a venture capital firm. The money from an angel investor can help your startup company get the momentum it needs to qualify for funding from a venture capitalist. If you are going to seek an angel investor for funding, you need to understand how it works. This includes how to find them and what type of businesses they invest in. Read on to find out how to raise capital from an angel investor if you are in the early stages of your business.
Who Are Angel Investors?
Angel investors are people who invest in a company at its early stage before the qualify for venture capital. These startup companies have potential to grow and provide a high return on investment (ROI) to the angel investors. A venture capital is not always the first choice as some people prefer to seek angel capital instead.
Angel investors invest in businesses individually or as part of an angel investor group. Angel investors need to have a net worth that is more than $1 million for the last 3 years to be an accredited investor. To qualify as an accredited investor, they need to also have an annual income of at least $200,000 for the last 3 years.
What Does an Angel Investor Require?
An angel investment is private equity which is capital invested in privately owned companies in exchange for a percentage of ownership. A business owner needs to give up a percentage of ownership in their company if seeking an angel investment. Angel investors make a cash investment in startup companies that have a high growth potential that do not generate more than $500,000 annually. They do still invest in small companies that have higher revenue, but they want to have the best chance of getting the most return on investment. Angel investors like to invest in startups as early as possible.
How to Apply for Angel Capital?
A business plan needs to be created before approaching an angel investor. This will give the investor the full idea of how the business will operate how the money is made and how they will get the return on investment. The business plan needs to outline the valuation so that the investor has an idea of how much the company is worth before they invest.
Some details needed in the business plan should include:
- An overview of the industry growth
- The product or service explained
- How you will use the capital
- How the business will make money
- The return the angel investor will receive
Think of the business plan as a pitch to the investor. It should concise but filled with detailed information of why your business is worth investing in and why you need the money and the estimated return the investor will get.
What to Do If You Can’t Get Angel Capital?
If you apply for angel capital but do not qualify, debt financing may be another option. Speak with a credit expert about your business goals and needs. They will help you determine what kind of financing could work best for your business.