Business Article - How to find a suitable investor
A business that is still in its early stages often finds it difficult to secure funding from venture capital firms. Business models that are unusual or which require an influx of cash before results can be proven need to find an alternate source of funding. For many this means locating an angel investor. Usually an angel investor is an entrepreneur who has become independently wealthy and is looking for unique opportunities where an investment in a company which ordinary venture capitalists would pass by can provide a large return. Angel investors can be easier to convince than the group processes at venture capital companies, since you are generally dealing with one person and a single investor can be more likely to take a risk on something which is promising yet unproven. Sometimes angel investors can be relatives, friends or people from your industry. Depending on how much money you need one angel investor may be enough, or you may have to find several to split the cost of getting started.
Before you start to search for an angel investor, however, make sure that you have a comprehensive business plan put together. Once you begin meeting with people to present your company to, you will want to be able to answer any questions that they may have. Your business plan to show potential investors should be specifically written for presentation - make sure that any business plan matches the audience that it is meant for. Consider any possible setbacks or obstacles to your business process and demonstrate how they can be overcome. Try to anticipate any objections that potential investors may have. Perhaps most importantly, have the business plan for angel investors demonstrate how they will be able to make a profit on their investment after a period of from three to seven years. This is the most common time range for investments in a company, and investors are likely to want some kind of guaranteed buyout or combination of money and stock arranged so that they will be able to profit on their exit. Special conditions may be provided in the event that the company goes public on the stock market with an IPO. Favorable exit terms for the investment, along with a coherent business strategy and a presentation which inspires confidence in the management of the company, will go a long way towards convincing an angel investor that your business is worth funding.
Where do you find angel investors once your business plan is complete and your preparations to present it are made? Start with anyone you know who is close to you and knows you personally, or people you can be personally introduced to by your friends or relatives. It is always better to be introduced to a potential investor by someone you both know, rather than have to meet someone and immediately make a cold case for investment. If your immediate circle of relations doesn't contain investment prospects, the next best thing is to network within your own industry. Use what industry experience you have by keeping in touch with as many of your on the job contacts as possible and meeting new people through them. If you are a member of professional trade groups or other organizations related to your industry it is likely that you will be able to connect with other people through meetings, conventions and mixers. Get to know people on a personal basis and gradually spread the word about your new business opportunity. Keep your search for an angel investor local - unless you are far out in the country you should be able to find someone interested in funding your project without having to do a lot of travel. Also try not to go too far outside of your own industry while networking. All things being equal, it is best to have an angel investor who is experienced in the same industry as your new company. A good angel investor may be able to provide strong business connections and valuable input as well as commit money to your business.
If you still need more help finding a suitable angel investor, there are a number of sites on the internet which list groups of angel investors. Many of these sites are specialized for certain areas of the country, and some may allow you to search based on the industry background of the angel investors in question. This can also be a good way to get in contact with groups of investors, which can supply much greater funds than individuals. The typical individual angel investor spends from twenty five thousand to one hundred thousand dollars on an investment, while a group can spend from two hundred and fifty to seven hundred and fifty thousand dollars or more. The downsides, however, are that groups of investors that you find online are less likely to have specific experience and contacts within your industry (so you may have to do some extra explaining for them to understand how your business model will give you an advantage over your competitors) and that investors listed online often receive anywhere from dozens to hundreds of business plan submissions a month, so unless you have a very compelling and easy to grasp idea for your business it may fall by the wayside.
Once you have identified angel investors who may be interested, send a letter and ask for a short meeting to talk about your proposal. When you meet with an investor, have you detailed business plan with you, as well as an executive summary (typically a one page summary of the plan which lets you determine quickly whether the investor is really interested and whether you should give out the full business plan) and materials such as a PowerPoint presentation or other visual aids to help you sell the idea more effectively. Once you have determined that the investor is interested with a quick look at the executive summary, give your presentation. Try to convey the excitement that you have for your project, give a sense of the potential for profit and how the company is able to fulfill a special niche market or overcome its competitors through some kind of advantage, and convince the investor of the reliability of your management and staff. After the presentation, answer any questions that the potential angel investor has about the company: how you intend to respond to various challenges, what the expectations are for an exit in three to seven years, etc. Leave the investor with a copy of your detailed business plan so that it can be reviewed later.
When you come to an arrangement, be clear about the terms of repayment and put everything in writing. It is much easier to have a contract to rely on in case of any misunderstandings down the line. The exit provisions are something that you want to make sure and explain clearly during your presentation as well as in the contract. Different angel investors may have different priorities for their exit provisions; they may be looking for a return within a specific timeframe, or they may be more interested in seeing the company go public within a number of years and receiving repayment in stock at that time.
If you make a deal to fund your company using cash from angel investors, you may well be able to get the money at a loan rate similar to, or only slightly greater than, the rates you would expect to pay a bank. Most angel investors are also not that interested in having a controlling interest in the business; they are more concerned about making a profit when they sell at the end of their investment window. While communicating with potential angel investors, find out what their specific interests are and do everything you can to make them comfortable with the conditions of the agreement and the amount of risk involved. The better that your communication is with the needs of your investors, the more likely you will be able to run your business without having financial complications. It may be a good idea to create an advisory board for your company and give the people who invest seats on the board. They can then determine the degree to which they are personally involved in the company, giving advice when they feel that it is needed, and they can be assured that you are taking good care of their investment dollars. Things like this go a long way towards keeping the investors comfortable and making sure that the relationship you have with your investors stays strong over the years.
In summary, through effective networking and research, by putting together a strong business plan and presentation of your company's qualities and goals, and by considering the needs of potential investors at every step of the way (including giving them a clear sense of how and when they will be repaid) you can find the funding that your company needs to get on its feet and be on your way to the top of your industry!