Angel investors: A source for new business capital

Are you seeking finance for your start-up or small business? An angel investor could be a viable option to help get your business off the ground.

Angel investors are one of many options to inject cash into your business dream and enter growth mode. Here's everything you need to know about what an angel investor is, where to find them, and what it means to bring one on board in your business.

What are angel investors? 

Many angel investors come in the form of business acquaintances; be it family, friends, a referral from your professional network or someone who is well known in the sector. They could also simply be an experienced individual with a high net worth who believes in you and your business concept.

 

The investment amount usually depends on a number of factors. For example, the financial and operational needs of your business at that particular point in time, the experience of the investor themselves and, of course, how much of their investment portfolio they wish to contribute.

 

This personal interest is where angel investors differ from venture capitalists. By investing their own money at such an early stage, they’re taking a more significant, personal risk. While this could lead to a greater individual reward for your investor down the track, they may wish to keep their investment activities private in the face of uncertainty – or simply because they’re a private person.

Who would benefit from an angel investor?

Ensuring that your start-up is investment-ready will not only help mitigate the perception of risk to potential investors, it means you could also start expanding the business immediately following the cash injection. 

 

Here are some important elements to have in place:

 

• A financial plan: This should include information on how you run your current company finances, why you need the capital, how you plan on spending the money, and the prospective return on investment (ROI).
• A business strategy: Undertake a market analysis and provide data on projected growth if you can.
• A reliable team: Do you already have a management team in place? If not, it could be a good idea to demonstrate how you would scale your team as your business grows. 

 

Should your angel investor of choice go ahead with the financial backing, they may help you optimise some of the above points to maximise your start-up’s potential – depending on their own professional expertise. This is one of the ways their role within your company could extend beyond investment.

What happens when an angel investor comes on board?

In return for their financial support, angel investors will usually receive equity in the business. Consequently, it could be in their vested interest to support your company in more than just a financial capacity.

 

For example, they might wish to advise you on managerial matters that could affect your business's future growth, offer crucial insight into the industry if they know it well, or help broaden your network by introducing you to key people.

 

However, involvement in the day-to-day running of the company following an angel investment and whether they charge an additional fee for their business acumen depends entirely on your agreement and personal preferences. That’s why it’s important to find an angel investor who shares the same vision for your business and how you’re planning to operate moving forward.