Angel investors financially contribute to small businesses and startups. Keep reading to find out why they matter.
Angel investors are an early-stagesource of funding for small business ventures that show promise of future growth. The most common trade-off angel investors seek is a stake in your business or profit royalties.
Angel investors (often professionals with a business or entrepreneurial background) use their money to fund small businesses or entrepreneurs with a small business plan.
Angel investors possess their own established wealth and want to grow their business portfolios. When an angel investor helps finance your small businessstartup, they will want to agree on a return on their investment.
Angel investors can be wealthy individuals, often venture capitalists interested in adding to or diversifying their portfolios. Although they are usually involved in some realm of the business world, they can also be financially established professionals, like:
Angel investors can be a game-changer if you are looking to take your small business to the next level.
For example, data shows that 71% of small business owners experienced revenue loss during the pandemic. This is a huge loss to overcome, and there is no shame in acquiring some extra help.
Whether you are looking for a way to recover or just want to grow your business in general, keep reading for benefits that might come with having an angel investor.
Because angel investors expect to receive a financial gain from your startup through equity or royalties, the nature of the agreement generally means that you are not obligated to refund your investor for any money if anything should happen to your small business.
This might give you peace of mind, as other options like loans will not provide you that same freedom. Of course, this depends on the terms of your agreement, so always get it in writing.
One of the most important distinctions of an angel investor is that they are not loaning you money; they are investing in your business. Small business owners are often bogged down by the stress of making monthly payments to a bank or other lender.
Additionally, having the interest rate of a loan looming over your head is an added pressure on your business and peace of mind. While pursuing the angel investor route, you will need to consider other legally-binding financial agreements that might arise.
However, you can rest easy knowing that the nature of an angel investor commitment is quite different than borrowing money from a corporation.
Many angel investors started out in your shoes. Whether they were small business owners or simply share that same entrepreneurial spirit, they understand and respect the tenacity it takes to run a successful startup company.
Angel funding provides your relatively new business with essential finances and often grants your team mentoring opportunities. Aside from having a high net worth, angel investors tend to have a keen understanding of the industries they put their own money into.
Additionally, angel investors not only want to see you grow your business, but they also have a financial motivation to see their investment become profitable.
This makes them a strong asset to partner with, proving them to be a viable consideration.
Any time you are considering making a decision that impacts your small business, it is important to think through all of the options on the table. Finances can sometimes feel like the biggest weight, so any strategy you can use to alleviate that stress is worth evaluating.
Remember, angel investors will expect a return on their investment. Before you meet with your angel investor, you should be prepared with a valuation of your business, so you can determine what your parameters are for the potential investment.
If your angel investor wants a stake in your small business, you will need to decide what percentage of your business you are willing to hand over.
If you go the royalty route, you will need to consider if your business, your salary, your employee wages, and your financial infrastructure can handle the hit your profit will take from sharing it with a new party.
Angel investors can be invaluable, but you must begin your partnership with clear guidelines and boundaries.
Before you meet with your angel investor, you must plan how much control of your business you want to keep. Make sure you understand how much involvement you are comfortable entrusting to your angel investor.
Both parties should be clear about their respective role to ensure a positive partnership process. On the one hand, you might want a highly involved investor, so you have access to their advice, input, and expertise. On the other hand, you may envision a more silent partner.
Either way, you need to consider which type of angel investor is right for your business and create those expectations before beginning your journey together.
One of the biggest perks of working with an angel investor is they choose to work with small businesses that they genuinely believe in.
An angel investor who understands your goals, your business plan, and your vision will want to see your business thrive. While many business decisions require people to use their heads, sometimes the best decisions are made from the heart.
Often, combining the head and the heart is the best way to go. When an angel investor invests emotionally and financially in your startup and they see an adequate return on investment, they will often be inspired to make another contribution to your business in the future.
It is important to keep your angel investor updated on financial successes, so they see the value and promise of your business and remain motivated to invest in the future.
If you decide that working with an angel investor is the right thing to do for your small business, several resources will help you find one. Some of those resources are:
Think of the Angel Investment Network as social media for finding an investor. This site will ask you to register and create a profile. Once you do, you can set your preferences, view investor bios, and find the right angel investor for you and your small business.
The Angel Capital Association: vets all of its members, so you know that any angel investor you find on this site is legit. Angel Capital Association keeps a database of accredited angel investors that allows you to search by state and other criteria so you can find the investor that is right for you.
Sometimes, things are best done the old-fashioned way. If you don’t want to sift through a database, then hit the pavement.
As a small business owner, you are constantly required to make the best decisions for your business. Obtaining an angel investor is one of those big decisions. When thinking about taking that leap, remember:
Like anything else in business, there are pros and cons to working with angel investors. As a small business or startup owner, you know what is right for the business you have built.
Sources:
How to Grow Your Business ⎸ The New York Times
How To Determine What Your Business Is Worth In Five Minutes Or Less ⎸ Forbes
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