Find out if an angel investor is right for your small business
A person who is angel investor someone who invests in a brand new or small business and provides capital for its start-up or expansion. The majority of angel investors are people who have money and are looking for a greater return than that offered through traditional investment. The typical angel investor looks for returns of 25-60 percent.
The Angel Investment is one kind of equity financing-the investor offers money in exchange for an equity stake in the business. Equity financing is usually utilized by businesses that are not established and aren’t able to generate enough cash flow or collateral that to secure business loans from financial institutions.
The angel investors help fill the gaps between the smaller-scale loans offered by friends and family members as well as venture capitalists. The process of attracting Angel Investors is not always straightforward, However, there are ways to go about it. Consider the possibility of angel investment and whether it is suitable for your business.
Advantages and Disadvantages of Angel Investors for Business Owners
The main benefit is that financing through angel investments is significantly safer than borrowing. In contrast to loans, investment capital doesn’t have to be repaid in the event that a business fails. In addition, the majority of angel investors are business-savvy and are able to see the long-term. An angel investor will often be seeking personal gain and also an investment.
The main drawback of using angel investors is the loss of full control as a shareholder. The angel investor has control over how the company’s operations are operated and will be able to receive some of the profit when the company is sold. When you finance your business with debt the lender is not in control of the business’s operations and is not a part of the earnings.
Typical Sources of Angel Investors
The term “angel investor” is a general term and you are able to find these kinds of investors in many different kinds. The most common sources of angel investments are:
- Friends and family: This is by far the most popular source of capital for business companies that are looking at the process of obtaining business start-up funds which is also the primary choice for a lot of people. Due to the high percentage of failure for new companies, this is also a risk due to the potential negative impact on relationships if the venture fails. It is essential to communicate the potential for failure.
- Wealthy people: Another good source is business owners who are successful and lawyers, doctors, and other professionals who have a substantial net worth who are prepared to put as much as (typically) $500,000 in exchange for equity. Most often, this is done through word-of-mouth through businesses or associations like your local Chamber of Commerce.
groups: An increasing number of angel investors are operating as a part of an angel syndicate (a group of angel investors) that raises the potential level of investment for them. Investors provide funds to the syndicate, and an experienced management team of the syndicate selects the investments.
A form of investing online Crowdfunding is the process of raising funds through large numbers of investors investing amounts of as little as $100.
Communicate Before Deciding
It’s crucial to any businessperson who is considering making an investment from an angel investor to understand what the investor will bring to the transaction, besides the money, like expertise in business processes or the ability to access reliable suppliers, for instance. Also, you should establish a clear understanding of what an angel investor might be willing to collaborate with as they may have different opinions about how your business should operate.
It’s also essential to have a thorough business plan. For a small-sized business, you’ll require it to get the financing you require from investors or lenders.