How to Find Angel Investors for Your Start-Up Business

If you've ever tried to approach a traditional bank for start-up financing for your small business, you know what a difficult and mostly unsuccessful process it can be. Banks are in the business of risk management. They see start-up businesses as unproven commodities and, therefore, risky. Assuring a bank that its capital is safe and that your business will generate enough free cash flow to repay the loan with interest can be an overwhelming task. After all, would you lend you money?

Luckily, there are other sources of start-up capital that small businesses with great industry-changing ideas can tap into. Some of the world's most successful companies were started with capital from non-conventional sources. Likewise, many world-class business plans have withered and died on the vine from lack of funding. Two non-traditional sources of financing for start ups are venture capitalists and angel investors.

Venture capitalists are individual or corporate investors who are willing to assume more risk in lending money to small businesses with the hopes of garnering a larger reward if that business is successful. They can lend start ups anywhere from a few thousand to several million dollars. A typical venture capitalist will review a company's business plan, research the potential market for the product and service, and offer financing backed by a slice of the pie if the company is a success. Ultimately, a venture capitalist becomes your (sometimes not-so) silent partner who has a vested interest in the success of your business because they own a piece of it.

What do you do if the venture capitalists all take a pass on your great business idea? The first thing you should do is to re-evaluate your plans. Take the feedback that you have received from bankers and venture capitalists and re-tool your plans to have the best shot at eventual success. Treat these rejections as sources of free business advice. You've had a chance to showcase your business in front of experienced lenders and they have outlined to you why it doesn't work for them from a risk management perspective. Should you give up at this point? No way. Make room for the angels.

Angels are investors who are willing to provide seed money to those start ups that are seen as too risky for venture capitalists. Angels come in all stripes and sizes. Your aunt Mildred might be willing to lend her favorite nephew $1,000 and that would make her an angel. In fact, a lot of angel funding comes from friends and family. If you've ever borrowed money from these sources, you know that it can end up a sticky situation if you're not able to pay back the money on time, or if the initial arrangement was vague and unclear. However, "professional" angels exist and have many different motives for lending start up funds. Some want to be at ground zero when a great new idea takes off (Google anyone?). Some want to help mentor new entrepreneurs and incubate baby businesses. Some are simply in it for the potential financial rewards down the road. Many angel investors are retired entrepreneurs who have made their fortunes in business and now are looking to recapture the rush of building something from scratch.

So how do you find these angels? Start by attending as many networking events in your industry as you can. Be involved in your local Chamber of Commerce or other business groups. If your idea is great and you have a developed prototype (if you are a manufacturer) or a marketing and business model (if you are a service business), angels will find you. Treat these potential business partners like you would bankers: always present yourself and your business professionally and respectfully. Angel investors know that the main selling point of a new start up is the quality and experience of the business owner behind it so make sure you show your potential partner why you're the one to make this idea fly. Ultimately, regardless of their other motives, angels are also concerned about their capital and will want to feel assured that you are going to be a good steward of their funds and that their money will someday come back to them. If your potential dance partner is looking for an equity stake in your business (the proverbial "piece of the pie"), make sure that you are comfortable handing over a portion of the company's ownership. Clarify with the angel what role they wish to play in the business from both an operational and decision-making perspective. And, like any other business arrangement, get it in writing and have your lawyer review the contract.

Angels can play a heavenly role in your business if you are open to some divine intervention.