By Paul Lewis
How do you know if your business needs an angel investor?
An angel investor can help provide much needed capital to a young business. However, if your business isn’t healthy to begin with, then extra cash will not help it. An angel investor is most interested in a young company that is about to pop. The money might be needed to develop a new product, fund a large order, create an additional revenue stream, or some other event that will “pop” the business.
An angel typically invests much less into a company than a venture capital firm, but the due diligence is shorter. If you have a good rapport with the angel and he likes your business, a deal can be struck almost immediately. It is critically important to know exactly how much money you need and exactly what you will use it for. If your business has a big opportunity which requires up front capital, an angel may be right for you. Angels typically invest in the $100K to $500K range and will want to receive a generous piece of the company for the investment; so be prepared to part with about 25% to 35% of the business.
Angels are early stage investors, meaning they usually get involved at the inception or shortly thereafter. Some angels will make an investment to launch a new company based on nothing more than a business plan, while others may want to see some traction in the marketplace before handing over a check. Your business does not necessarily need to be generating a profit (or even have revenue) as long as the angel can see a way to make the business work.
1. Make sure your business is healthy
2. Know exactly how much capital you need and exactly what it will be used for
3. Be prepared to part with a big chunk of equity
4. Consider an angel at inception or shortly thereafter
5. You do not necessarily need to be profitable to attract an angel