One of the common challenges that most, if not all, businesses face is finding the initial investment needed to get off the ground. Having a viable business idea is one thing, getting the necessary capital to make it a reality is a different kettle of fish. As some may ask, of what use is a business idea without capital?
In this edition, we shall be considering Angel Investment as a vehicle for raising capital for business growth and expansion.
Angel investment simply put refers to the investment made in a business, usually, by a non-founding member in exchange for an equity ownership interest. Angel Investors play an important role in the economy, and in many countries constitute the largest source of external funding, after family and friends, in newly established ventures.
Angel investors could be individuals, a group of individuals or companies that pulled their resources with the purpose of investing in startup businesses in exchange for a convertible debt or equity in the new business. Contrary to popular belief, most angels are not millionaires. This means that needed funds for your business expansion may be in the hands of your next door neighbor!
Types of Angel Investors
Family/Friend Investor: This is not really a classic Angel Investor at all, but a supportive family member that knows you. Their motivation comes from the interest in supporting a family member or friend. Their basic investment thesis is that they trust you. The major downside of this type of investment is that it is very difficult to mix business and personal relationships.
- Business Associates: These are people you come in contact in the normal course of your business. They may include professionals, suppliers, customers, employees and even other entrepreneurs.
- Entrepreneurial Angels: These are successful businessmen who run their own businesses and have a steady cash flow which allows them to invest despite the high risk.
- Professional Angels: This refers to professionals such as doctors, lawyers etc. who invest in familiar fields. They can offer their invested companies professional help.
Why You Should Consider Angel Investors
- Angel investors can help jump-start small businesses that have a great product and superb organization, but lack financial flexibility. These investors tend to inject a hefty amount of money, which often results in almost immediate growth and development.
- In addition to the money provided, angel investors play a key role in providing strategic and operational expertise for new ventures as well as social capital (e. their personal networks).
- They usually have experience in the industry in which they choose to invest, and they like to get involved. Having an experienced entrepreneur to mentor you and help you make difficult decisions can be even more valuable than the financial investment itself.
- They are typically willing to accept risk and demand little or no control in return for the chance to own a piece of a business that may be valuable someday
Major things angel investors look out for in any business:
- The legal status of the business. Having a registered business is a plus in pitching an investment. It gives the impression that the business is being run by serious minded people.
- The registration documents to find out the nature of business that the organisation is legally permitted to do and the particulars of the founders.
- The quality, passion, commitment, and integrity of the founders.
- A very clear plan of how the money will be applied, what equity you are willing to part with and the likely returns on investment.
- The market opportunity being addressed and the potential for the company to grow.
Finding Angel Investors
Apart from existing contacts, such as family, friends etc, getting people to part with their money to promote your (not theirs) business idea would be quite challenging. However, the following tips could help you meet and close deals with angel investors to take your startup or small business to the next level.
- Attend Events and Conferences: Angel investors are known to attend business events and conferences looking specifically for investment opportunities. Attend all events, conferences, and presentations that are relevant to your industry, and participate in them as much as possible.
- Join Social Networks: Angel investors usually operate within private groups and networks. Try to identify these groups and networks, and locate individual members.
- Research Online Options: The digital revolution has changed many aspects of business, including angel investors. You can now scour the web and find websites dedicated to connecting angel investors with potential candidates, and apply for funding. Online business platforms like Nigeria SME Forum (nigeriasmeforum.smefinance.org) are a good place to post your business idea and call for investors. Nigeria SME Forum is a trusted network of Small Business Owners, Independent Professionals and Support Service Providers who are engaged in starting, running and growing their businesses, and assisting each other in achieving their personal and business goals.
The world of entrepreneurial startups is where the most exciting and creative action is happening in today’s business world, with angel investing entering the mainstream; more than USD 50 billion are being invested annually in the World, with a sustained growth over the past years.
Angel investors are the only group of investors that are willing to spend their resources in a new business that has not been tested and tried. If they trust you, they can buy your business idea. Although they may be hard to find, angel investors can be the solution to startups and small businesses that are struggling financially. Angel investing is a viable instrument for business growth and expansion.
This article is provided for general information purposes only. It does not constitute legal advice or a legal opinion on any specific facts or circumstances. If you have any enquiries about this article or require further information, please contact the writer – firstname.lastname@example.org.