6/13/2012
by: Joseph Page
Topic Views: 654

Angel Capital

Business Angels help with early funding

Angel Capital
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An excellent source to kickoff

Business Angel Capital to Launch

Angel Capital is precious early money which needs to be spend very carefully. It is also very 'expensive' money so you must use it wisely. Angels sometimes also want management participation which can cause problems and conflict. Choose your Angels wisely.

Business Angel Capital is Precious

Angel Capital is often the first outside financing (see Bootstrapping) your project will require. Inventors who start a project often consume their personal funds quite quickly while at the same time attracting many expenses required to advance development of the company. In the first days, an inventor can speak with a patent attorney to learn nothing can be started without a $10,000 retainer. Similar with prototype expenses. While some things can be easily modeled or manufactured without large cost, most will require some expensive prototype development which can also be expensive.
These and other very early project expenses tend to consume the entire budget of young start-up companies. Accordingly, Angel Capital is typically the first and most precious money. It is usually very modest in quantity and often very hard to find.

Angel Capital can be Expensive

Angel Capital may be characterized as 'expensive' for several reasons. First, because an infant project sometimes has little or no means by which it might be valued, it is hard to know how much equity should be traded for the capital received. As a project matures and the valuation becomes more clear, the deal may no longer seem fair for the amount of money received. While the Angel takes a great risk, the entrepreneur works hard to advance the idea and later realizes the money taken early cost a considerable amount of equity. It may be described that entrepreneurs tend to sell too much equity for very little in the early days. However, Angels will be quite disinterested when an entrepreneur tries to drive a hard bargain from the beginning. One doesn't have the advantage of hindsight to set the correct valuation at an early date.

Business Angel Capitalists As Your Partner

Business Angels as Partners

Of course many Angels will be excited by the project – otherwise they would not tend to invest. However, this excitement tends to push them into a position where they want to participate into a decision making role. This invites early trouble. The Angel can take the position that since she is the 'man with the money', that she is in a better position to know what is right. Big trouble for all involved. The undoing of many happy deals came as a result of the Angel getting too excited and entering control of the project direction. It is best to make it quite clear in the beginning that the capital is received in exchange for the opportunity to enjoy profits on the project performance – but is not a purchase of a management position in the project. Be careful to avoid having your Angel become your partner.

Are Business Angels Effective?

You may ask: "How Effective are Angels "? It is difficult to determine the overall effect Business Angels on the entrepreneur community. However, many projects still get their start from early smart money. A recent trend away from Business Angels is now becoming known as 'Crowdsourcing'.

Learn more about the performance and characteristics of Angels

This study done in the UK attempts to quantify many aspects of Business Angel investing. In an Annual Report done by Hunter Center for Entrepreneurship the Business Angel Market is analyzed .

Where to Find Angels?

The following are some of the Venture Capitalist which are presently looking at new deals. Contact these with your project to see whether there is interest in your idea.

Directories of Business Angels

Here are some good links to business angel directories which you might find of use.

How to Approach a Business Angel

Now that you've found your target business angels, how do you approach them? In most cases, this is going to involve a very clear and succinct plan. Details are fine in a detailed plan, but to start off one should have a very brief easy to read overview. Some folks even like to use a 'two-minute sheet' or 'elevator pitch'. You may learn more in this interest article published in Forbes about "Three Tips to Approach Angel Investors"

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