The most effective way to get set up with people who will invest in your fledgling business is to actively and creatively seek them out.
Are you in need of seed money to grow your newfound venture? Call zealously upon angels. Not the winged cherubs of religious artwork, but private investors who want to help entrepreneurs get their businesses off the ground. In today's tight economic climate, angel financing continues to fill in the gap in start-up capital between family, friends, and yourself.
Angel investors are estimated to provide 90 percent of all seed and start-up capital, compared to the venture capital community, which invest less than 2 percent in start-ups and instead focus on a smaller pool of later-stage companies, according to William H. Payne, an angel investor and entrepreneur in residence with the Ewing Marion Kauffman Foundation, a Kansas City non-profit that promotes entrepreneurship. There are at least 250,000 angels active in the country, funding about 30,000 small companies and investing $20 billion to $50 billion a year, estimates The Small Business Administration.
The potential pool of angel investors stands at about two million people in the United States with the necessary discretionary net worth. Typically, angles are retired executives and successful business owners who invest in new companies in exchange for equity ownership—anywhere from a 5 percent to 25 percent stake in the business. An entrepreneur with a good idea and business model can look to an angel to put up from a $150,000 to a $1.5 million investment. In addition to equity, most angels seek an annual return between 15 percent and 20 percent over a five-year period.
Angel investors are located just about everywhere. But they are generally hard to find. "Most solo angel investors fly under the radar because they rely on other angels and experienced service providers for deal flow," says Payne. However, he notes in recent years several business groups have created networks of angel investors.
Most small business owners find angels through word of mouth. But more entrepreneurs are finding creative ways to get introduced to private investors from using angle networks to appearing on national television.
Mike Williams, CEO of Reality Gap, has successfully secured angel financing. In the last two years he has raised a total of $7 million; that amount represents 62 individual angels all together.
"But to finds those angels, I presented my business to more than a 1,000 potential investors," says Williams. It was mainly through network groups like A Gathering of Angels, the Keiretsu Forum, and North Bay Angels that Williams secured funding. "I was willing to go all over the nation," he says.
Launched in 2007, Reality Gap is a Seattle-based video game publisher of massively multiplayer online games and innovator behind MetaTIXTM, a turnkey currency system for virtual worlds. The company is just starting to release its products, grossing sales revenues less than $100,000 in 2009. New titles include Monato Esprit, a 3D online role playing game and Battleswarm Field of Honors, a combat strategy game that pits first-person shooters against real-time strategists in epic online battles.
"We were literally able to build the company from scratch using angel money and we are just now finally trying to sell it to the public," says Williams.
Williams and business experts agree the most effective way of finding and meeting angel investors is to actively seek them out and to have a planned approach.
How to Meet Angel Investors: Try A Matchmaker
Angel networks make for some of the best matchmaking between entrepreneurs and investors. Each angel network operates slightly differently. Some are free while others charge for consideration of an application or require a pay to pitch fee. An entrepreneur may shell out $50 or $5,000 for a 15-20 minute presentation before investors.
For instance, The Gathering of Angels holds monthly meetings in a number of different cities nationwide. For a $2,500 fee, six companies get to present a 20 minute PowerPoint presentations each followed by two to five minutes of Q&A. The Keiretsu Forum, which has 850 accredited investor members throughout nineteen chapters on three continents, hosts an Angel Capital Expo that allows 10 start-ups to connect with and pitch to potential backers. North Bay Angels is a membership organization that provides opportunities for business owners and inventors to get together. The cost is a one-time initiation fee at $425, annual dues of $350 and $75 per dinner meeting, held every two months and allows for two company presentations.
Surfing the Web can provide fast and effective ways for small business owners to hook-up with angel investors. The Go Big Network is a marketplace that boasts a community of 20,000 plus investors and 250,000 start-up companies. Entrepreneurs can post and search profiles for free. But it will cost a one-time annual fee to advertise a funding request to investors or contact investors directly in the database.
A free online network is Go4Funding, which pools together entrepreneurs and prospective investors from around the globe. Business owners can post their capital requirements, while investors can post their profiles. Both parties have an opportunity to learn about each other for a possible match. Go4Funding also allows business owners to upload images and videos of their pitches.
For a compiled list of angel groups nationally and according to geographic region, visit the Angel Capital Education Foundation.
Dig Deeper: How to Find Willing Investors
