By Dave Lavinsky
Most entrepreneurs and business owners need funding to start and/or grow their businesses. When just starting out, raising this funding is more challenging. Why? Because it is a riskier investment. Your business doesn’t have revenues nor a track record to prove its ability to achieve success. And investors and lenders know that most businesses don’t make it. Adding to this challenge for startups is that most banks won’t lend money to companies without at least two years of operating history. And on the equity side, venture capitalists also have begun shying away from really early stage companies. Rather, they want companies who have, at a minimum, built a prototype and/or secured beta customers.
So, what’s a startup entrepreneur to do? The answer in many cases is to seek an angel investor. Angel investors are individuals who invest, typically in the form of equity, in early stage companies.
And the good news for entrepreneurs is that there are a lot of angel investors and they invest a lot of money each year. In fact, according to the Center for Venture Research at the University of New Hampshire, last year angel investors gave $22.5 billion to 66,230 entrepreneurial ventures. And in total, 318,480 individual angel investors provided this funding. Yes, that’s a lot of angel investors, a lot of money and a lot of entrepreneurs who received that money in order to start and grow their companies.
So, how do you go about raising angel funding? The first thing you must understand are the motivations of an angel investor. Like institutional investors and lenders, such as banks and venture capital firms, angel investors want to see businesses with real growth potential and ideally some “secret sauce” that makes them more likely to succeed. This “secret sauce” might be proprietary technology, unique relationships with potential customers, or unique management team experience among others.
But unlike institutional investors and lenders, because angel investors invest their own money, other factors enter into their funding decisions. Such as how much the angel investor likes the entrepreneur. And how investing in the entrepreneur will boost the angel’s ego. That’s right, virtually every angel investor wants to be able to walk around with pride telling their friends they are an investor in the next Facebook or Google, or even the new coffee shop opening up in town.
Finally, with regards to finding these angel investors, the best solution is networking. Potential angel investors are all around you. They include local business owners and executives among others. You simply need to get out there and network. Speak to business owners. Find out if they are interested in your venture and/or who else they know that might be. And so on.
In summary, angel investors are a great source of funding for entrepreneurs and business owners. To successfully raise this funding, make sure you understand their goals and that it’s a numbers game – the more you network and the more potential angels you meet, the higher the likelihood you will raise all the funding you need.
Dave Lavinsky is the President of Growthink, a consulting firm that, since 1999, has helped over 500,000 entrepreneurs develop business plans, raise funding and grow their businesses. Growthink’s Angel Investor Funding Formula teaches entrepreneurs and business owners how to raise funding from angel investors.