BBVA Compass

Identifying an Angel Investor

Identifying an Angel Investor

So, your business plan seems carved in stone, your financial projections are looking rosy and you're ready to get started on your venture for real. All you need now is the money to make it happen. But how do you find the "angel" who's going to get you started?

Despite that exotic sounding, "heavenly" name, angel investors are really just regular people with the means to fund new businesses - and there are more of them than you might think. Based solely on discretionary net worth, there are about two million potential angel investors in the United States. Of course, not all of those potential investors are actively funding businesses; still, according to the Center for Venture Research at the University of New Hampshire [wsbe.unh.edu/cvr], there are over a quarter of a million active angel investors in the U.S. In 2007, angel investors put more than $26 billion into 57,120 companies. They would have given more if they could; angel investors told CVR they might have invested up to one-third more money if they'd had the opportunity. There's no question about it, the money is out there - now it's up to you to find the angel who'll help you bring your business dreams to fruition.

Friends and Family

Believe it or not, the first place to look for an angel investor is among your own friends and family. Taking a personal relationship to the bank can be a touchy business, so it's very important that if you do accept an investment from a friend or relative, you do it under very clearly defined terms. She may remember changing your diapers and bandaging your skinned knees, but you still need to treat Aunt Sally as you would any outside investor. Define the terms of your agreement, put it in writing and consult with an attorney before finalizing the deal. Your investor should also have her attorney review the agreement and advise her regarding her involvement with your venture. Keep your business dealings formal and you'll avoid the kinds of misunderstandings that can evolve into family drama.

Search Your Community

If friends and family don't have the resources you need, it's time to broaden your search. You don't have to go far, though; the best place to start looking is close to home. Angels are often looking to invest in their own communities. According to the CVR, seven out of ten angel investments are made within 50 miles of the investor's home or office. Begin by talking to your own advisors, your attorney, for example, or your accountant. Frequently members of those two professions will have other clients who are interested in investing, or will know of potential investors in the community. It's also a good idea to contact a local venture capitalist or banker and ask for some direction. While she may not want to invest in a business at your level, there's a good chance she may be able to point you in the direction of an investor who's likely to be interested. Know your industry, too; you may be able to identify angels in newsletters and trade publications or at conferences.

Expanding Your Search

This is also the time to put your network to work for you. You've put a lot of effort into making contacts through trade organizations, professional groups and online resources like LinkedIn.com. Now is the time to start reaching out to your industry contacts and ask for referrals. You can approach an angel investor cold, but you're more likely to get a welcoming response if you start off with a personal introduction.

There are a number of other places to look for angels in your area. Universities that have entrepreneurship programs will often be aware of local angel investors. Check with your local Small Business Development Center to see what resources it offers for locating angels. Even the chamber of commerce may be of some assistance, as venture capital and investing groups sometimes register with the local chamber.

Google an Angel

If you're taking your angel search to the web, there are plenty of resources available. You may want to start with an angel investor directory; Inc.com and vFinance.com both host online directories of investors and capital sources. You can also search for angel networks. Many active angels have joined forces to establish networks of like-minded investors. You can see some examples at these websites:

What To Expect

Remember that angel investors, unlike venture capitalists, are likely to want a more hands-on role in your business. They're often entrepreneurs themselves with experience and wisdom to share, and choosing an angel investor often means entering into a sort of mentorship in addition to securing capital. For that reason, you want to make sure your angel is a good match for you and your venture. Make the effort to seek out an angel who has demonstrated an interest in businesses like yours. If you're approaching an angel network, start by targeting one or two individual angels within the organization who you think may be interested in your project. It will be easier to get the entire network on board with your venture if you have people on the inside with whom you've already started to build a rapport.

Finding an angel requires time, effort and creative networking; in fact, you may have to put as much effort into finding the right angel investor as you put into developing your business in the first place. Your relationship with your angel will be ongoing, so you want to make sure you establish good communication and a friendly dynamic from the beginning. Find an angel with whom you feel comfortable and from whom you can learn something. Ideally, she'll be able to provide you not only with funding but with guidance and expertise that will prove to be invaluable.

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