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Angel investors are often a business owner's best friend. Most angels have owned businesses in the past. They are entrepreneurs who know what it takes to get a business up and running, how hard it is to expand one, and already understand that businesses do not always work exactly as planned. Angel investors tend to be people who play an active role in supporting the businesses they invest in, and they tend to have a wide range of skills and resources they bring to the table beyond money.
Angels are also very astute. They are difficult to deceive or confuse. Because they have played active roles in running a business, they have strong opinions about how businesses should be run. They may well be very hands-off when things are going well, and very hands-on when things are going badly. - You can find angel investors everywhere. The doctor who treats you for colds, the lawyer who handled your divorce, the guy who owns the dry cleaners--they may all be angel investors for some business or another. What and who they decide to invest in has everything to do with their personal interests and personal strengths.
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Approaching angel investors is a straightforward process. While talking to them about something of mutual interest you simply ask, "Do you ever invest in small business?" Most are used to answering this question and they are happy to tell you right off whether or not they choose to act like an angel from time to time. Often the answer will be "No" and you can move on to other topics of conversation. If they say they do invest in small business from time to time, you can say "I have an angel investment . . . " Give them four sentences that describe what you are doing, why it's a good idea, how much you need and how much they stand to make if things go well. Ask if that's the kind of thing they might consider. If they say "Yes," send them your business plan and references. If they say "No," smile and say "Thanks for listening to my pitch."
Once you find an angel who might be interested in your project, treat him as you would any other business partner. Make sure he knows what you need and why, tell him how he will be compensated, and prove that you've done your homework in your planning and that you have a good team behind you. If you and your investor are a good match, you'll get the funding you need on the terms you want. - There are laws that govern who can invest in a business and how such business relationships should be organized. One key idea is that angels must be business-savvy investors. Your grandmother living on a pension is not a good angel investor, and neither is your uncle who is cashing in his 401K. Generally an angel has many investments and has many years of business experience under her belt. She should meet certain requirements for disposable income. This kind of investor is called an accredited investor. You can run into significant legal and financial difficulties by taking money from unaccredited investors. Make sure you and your investors work with lawyers in order to set up your deal.
- Choose your investors wisely because until they are paid off or have cashed out, they are part of your business. In a very real way choosing an angel investor is like hiring a boss. Always be up front and above board in working with angel investors. If your angel decides he cannot trust you he is in a position to cause you a great deal of grief.
