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Ten Tips to Attract Angel Investors

NONPROFIT TIPS

FOR PROFIT TIPS

Raising Money
- Today's Times
- Angel Investors

The Tools
- The Elevator Pitch
- Investor Presentation
- Business Plan
- Financials

Strategic Issues
- Challenging Times
- Competitive Barriers
- Measuring Performance
- Outsourcing
- Strategic Alliances
- Strategic Plannin
g

- Sustainable Growth

Sales & Marketing
- Better Branding
- Developing E-newsletters
- Online Feedback
-
Market Analysis
- The Plan

The Human Element
- Hiring/Keeping
  Employees
- Advisory Boards
- Corporate Board

Miscellaneous
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Selling Your Business

Angels are not average investors: They are people who can financially afford to indulge their love of risk. To be an angel, one must be an "accredited investor," which the Securities and Exchange Commission defines as someone with a net worth of at least $1 million or an annual salary of at least $200,000.

According to the Center for Venture Research, about 400,000 angels invested about $35 billion in 50,000 businesses in the year 2000. Typically, an angel invests less than $1 million in an early-stage company.

Angels provide additional value beyond the funds they provide. Many were successful business owners and entrepreneurs who can also bring you valuable industry experience, executive knowledge, creative ideas and contacts. When targeting angels, here are some guidelines.

1.

Build a Convincing Case: Angel investors may be willing to take on more risk than most, but they still need to see a well thought out plan with a product that has a documented “must have” need and a competent team behind it. It is rare that an entrepreneur can raise money from angels without clearly defining the competitive landscape of the business and how the product has a clear competitive advantage over others. Investors will want to know the barriers to entry. Namely, how you will keep competitors from being in the same exact business. Some barriers to entry might include patents, trade secrets and proprietary processes.

2.

Create a Prototype and Line Up Beta Testers: Angels do get involved in the early stages of a company, but not usually before there is a working model of the product and potential customers have committed to test the product. Having a prototype will greatly increase your chances of attracting angel investors. Demonstrating that you can get paying customers in the real world puts you far ahead of entrepreneurs who simply have a business plan and an idea. Later stage companies need to show they have accomplished revenue growth and have paying customers who validate their pricing strategy.

3.

Ante Up: If you want to start a business, be prepared to invest your own money. Entrepreneurs who expect angels to risk money in their venture, better throw something into the pot. Those entrepreneurs who are not willing to assume such risk are not considered serious by investors, and will most likely not receive funding.

4.

Focus Your Search: Identifying angels who are suitable for you up-font will increase your chances of success. To help you identify appropriate angels when pitching, ask them what they look for in a company, how much they typically invest, what kind of return they expect on their money. In addition:

  • Concentrate on Your Industry: Angels like to invest in companies whose business they know something about. Many angels, having previously been successful entrepreneurs, will tend to lean toward their prior industry experience.
  • Target Investors Interested in Your Stage Company and  Deal Size: Some angels will only invest in seed or start-up companies, while others seek later stage ventures looking for expansion capital. Angel investors will have a dollar range they are comfortable investing. This can range from $25,000 to several million dollars.
  • Look Close to Home: Angels frequently want to be actively involved in your business. Make it easy for them to do it in person by looking within a 50-mile radius of your corporate headquarters. You may have to expand your horizons, but try to stick within a day's drive.
  • Look for Risk Takers: Since there's no such thing as a national directory of angels, you've got to put together your own list. Look for other interests that might indicate a risk taker, such as sky diving, sailboat racing or adventure travel. But remember just because someone is a risk taker, it doesn’t mean that they won’t do a lot of homework to control those risks.

5.

Make Connections: While some investors do read plans that come over the transom, plans referred to them by a trusted source, such as a business associate, lawyer or accountant get far more attention. Other options to meet people with deep pockets are to present or at the very least attend a venture capital conference or angel club meeting. Network to find out about these opportunities.

6.

Connect Personally: Angels spend a lot of time with entrepreneurs especially in the early stages of building a company so getting along is crucial. Chemistry covers whether you like, trust and are in sync with each other. To have good chemistry you have to personally connect, and have similar expectations, vision and objectives for the company. Being able to answer angels questions without feeling threatened is also crucial.

7.

Be Persistent and Patient: Entrepreneurs must be committed, passionate, and thick-skinned. Raising capital is a time-consuming, ego-challenging process. It is not unusual for a startup entrepreneur to spend 50%-70% of his time raising capital from angel investors, a process that can average 3-6 months and in an uncertain market, it take even longer.

8.

Do Due Diligence On Angels: Entrepreneurs should be choosy about who they take money from. Make certain that you really know your angel. Understand his motivation and expectations for exit strategy and ROI (return on investement). Know what added value they can bring to the table. Knowledgeable angels with good connections can jump start a company and keep it thriving. Well-connected angels can even make it easier to get additional rounds of financing including venture capital.

9.

Don’t Haggle Over Terms: Efforts to horde stock and inflate valuations will make the company less attractive to suitors. Let experienced professionals - lawyers and accountants - handle terms and valuations. Heed their advice.

10.

Keep Angels Informed: Angels want to know how the company is doing whether is good or bad. Staying in touch by phone, email and even a monthly letter will keep investors happy.

 Prepared by:

Geri Stengel, president of Stengel Solutions, a business strategist.  She can be reached at 212-362-3088 or E-mail

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Contact Geri Stengel at
  212.362.3088 or E-mail

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