Six Tips for Businesses Considering Financing with Angel Investors

If you have a small business with above-average growth potential and a need for capital to fund that growth, an angel investor may be an attractive financing option for your business. Angel investors provide funds to early-stage, private businesses with the expectation of earning well above-average returns.

Before you tap this source of funds, do your homework to determine if it is right for your business, since you will have to give up an ownership interest and perhaps some degree of control. Here are 6 tips for businesses considering financing with angel investors.

1. Determine whether your company is a good candidate for an angel investment. An angel investor usually provides interim capital to an early-stage, growth company that eventually expects to raise funds from venture capitalists or by going public. Before approaching angel investors, you will need to determine whether this is a realistic expectation for your business.

2. Assemble an advisory board to help you prepare for and find angel investment funding. The advisory board should include an accountant and a lawyer with expertise in angel investing and other funding options.

3. Prepare a detailed business plan for your business. The business plan should cover all the bases related to your business and its outlook, including its target market, competitive edge, marketing strategy, management team, economics, financial position, growth potential, and financial projections. Also, be sure to explain how funds from an angel investor will be spent and when you anticipate obtaining additional funds from venture capitalists or a public offering. Be able to clearly and convincingly describe how you expect to successfully execute your business strategy and achieve the above-average returns that an angel investor requires.

4. Decide what you are willing to give up to an angel investor. Most angel investors want a stake in the business in the form of stock or other securities and the potential for well above-average returns. Also, an angel investor may want the right to participate in future financings, a seat on the company's board of directors, and a say in some key business decisions (such as the sale of the company).

5. Be prepared to communicate regularly with your angel investor. At the least you will probably be expected to provide detailed quarterly financial reports and business updates, and most likely you will have to provide more frequent updates.

6. Determine how much assistance you want from an angel investor. The right angel investor can provide more than just cash to your company, so target angel investors with the experience or expertise to add value to your business. For example, an experienced angel investor may be able to advise you on how best to position your company for future financings and may have valuable business relationships.

Sources:

www.smallbusinessnotes.com, Angel Investors

www.angelinvestorfunding.com, Ten Tips to Appeal to Angel Investors