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Bill McCready
Private Investors (Angels) and How To Reach Them Angels
Informal Venture Capital Provides 80% of All Initial Funding
It's easy to assume that the majority of entrepreneurs obtain
funding from venture capital firms. In fact, nearly 80% of all
investment in small startup companies comes from two groups: the
FFA (Family, Friends, and Associates) and Angels (Private
Investors). While it may be possible to raise money from family
and friends, it is not always the best idea. Often, the FFA
funding source is less sophisticated than an experienced
investor, and may have unrealistic expectations.
If at all possible, use FFA funds as debt, or preferred
non-voting stock. This will help isolate this group and make it
easier to raise capital for subsequent stages of development
later from "professional" investors.
Investment Evaluation Criteria
Private Investors are as diverse as entrepreneurs. There is a
wide range of profiles in terms of their industry expertise,
business experience and, most importantly, their ability to work
effectively with you.
Successful angels make their investment decisions based on four
fundamental criteria: management, market, products, and
financial opportunity. They evaluate each criterion from the
perspective of minimizing their risk and maximizing their return.
Where to Find Angels
Here are the profiles generally attributed to Angels:
+ Most are entrepreneurs themselves.
+ Generally middle aged; 47+ looking for diversification.
+ Have high incomes, but are not necessarily millionaires.
+ Most are highly educated with advanced technical degrees,
M.S. or Ph.D.
+ They are very active investors averaging 3-4 deals per year.
These individuals can be reached through numerous sources. They
attend trade shows, venture capital type meetings, and visit
universities to find deals. Finding them is a matter of personal
networking. Many will remain hidden from the individual
entrepreneur, so using an intermediary is often the only way to
meet them.
+ "Gate Keepers", who screen projects for wealthy investors,
and usually represent three to five individuals, a trust, family
investment pool, or a group of medical professionals.
+ Business Development Consultants who work specifically with
startup, business development, mergers and acquisitions.
+ Bankers, finance companies and savings or investment houses
such as stock brokerages.
+ CPA's, tax, accounting and bookkeeping companies.
+ Attorneys, bankruptcy courts, arbitration groups and others.
Private Investor Behavior
+ Angels will provide equity plus loan guarantees.
+ Angels usually invest with 2-3 others.
+ Angels bring more than money to the table, often filling
gaps in management skills.
+ Angels usually do not want control.
+ Angels request voting common stock or partnership interests.
+ Angels are looking to exit their investment in 3 - 4 years.
Private Investor Involvement
How will private investors want to be involved in your business?
+ 21.7% Will work part time in the business as employees.
+ 27.0% Will offer consulting help, sometimes with reduced or
no fees.
+ 15.1% Will agree or ask to be on the Board of Directors.
+ 19.0% Will review reports and other documents.
+ 17.3% Want to work full time for the business
http://www.ventureplan.comTel. 858.457.3434 / efax
425-955-7531 capital@ventureplan.com
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