It Takes Money To Make Money: Attracting Angel Investors

Tuesday, May 9, 2006

Michael Copeland, Business 2.0, http://

Abstracted from: How To Find Your Angel

Business 2.0 - March 2006, Pgs. 47-49

Tapping a resource.
Finding an angel investor requires a combination of time, patience, an intriguing product, and a well-directed, persistent effort, reports Michael Copeland. Angel investors fill the gap between venture capitalists (who often shy away from early-stage, untested companies) and entrepreneurs (whose businesses may be long on promise but short on cash). In 2004 alone, these individual investors funded an estimated 48,000 businesses, compared to just 3,000 new firms that received capital from venture capitalists. Companies such as Apple, Body Shop, Kinkos, and Amazon.com all got their start with funding from angels, who may invest anywhere from a few thousand dollars to $1 million.

A match made in heaven.
Entrepreneurs can improve the odds of finding angel investors by following the author's guidelines. Begin by treating the friends and family members who are willing to invest­a common source of angelic money­as business partners. Decide whether the transaction will be structured as equity capital or a loan and, if the latter, set specific terms, including payment dates and interest. Deals involving equity capital should outline liquidity preferences and terms for investing in future rounds. Have an attorney draft all necessary documents. Next, to woo strangers or acquaintances, craft a working prototype or provide enthusiastic references from current angels. Become familiar with angel associations such as the Angel Capital Association (www.angelcapitalassociation.com), the Band of Angels (www.bandangels.com) in Silicon Valley, or Boston's Common Angels (www.commonangels.com). Read the biographies of members on the association's website, and try to initiate contact with someone that sounds like a good match. Earning that individual's confidence could lead to an invitation to pitch to the entire group.

Playing to the angels.
Ferreting out angels' investment preferences can help tailor an approach to the right people. Eric Hahn, one of Silicon Valley's super-angels, invests only in companies with hard-to-replicate technology. Mark Cuban, who sold Broadcast.com to Yahoo in 1999, recently became an angel investor in Brondell, a maker of Japanese-style sanitary toilet seats. According to one of the company's founders, Cuban was attracted to the product's mass appeal. Entrepreneurs can also get to know angels by asking them to work with the company in an advisory role. As the relationship evolves, the author notes, those advisors could eventually become investors.

Abstracted from Business 2.0,
published by Time Inc.
Time & Life Building
Rockefeller Center, New York, NY 10020-1393

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