Does watching Shark Tank make you dream about finding an angel investor of your own? Well, stop dreaming and start searching—angels are real and not just found on TV.
In fact, the University of New Hampshire’s Center for Venture Research reports in 2018 that “The angel investor market saw an increase in market participation in more companies but at smaller amounts. Total investments in 2018 were $23.1 billion, a decrease of 3.4% over 2017, and 66,110 entrepreneurial ventures received angel funding, an increase of 7.4% over 2017. The number of active investors in 2018 rose to 334,565 individuals, an increase of 16%.”
What’s causing this? CNBC suggests investors have “deeper pockets” due to “the longest economic expansion in U.S. history, which has produced legions of cashed-out entrepreneurs looking to stay involved in the startup scene.” Plus, Shark Tank has shined a lot of light on the angel investing process.
Angels are becoming more plentiful. According to the Angel Capital Association (ACA) angels are usually high-net-worth individuals (or groups of people) who invest their own money in startup companies in exchange for an equity share of the business. The ACA recommends you only work with accredited investors “who can add value to the company via high quality mentoring and advice.” Recently, says CNBC, “less-affluent investors have begun to participate in angel investing via equity-crowdfunding platforms.” (Check out the federal guidelines for this practice.)
The ACA says angels are often former entrepreneurs who make investments for various reasons, including:
- To make a return on their money
- To participate in the entrepreneurial process
- To give back to their communities by catalyzing economic growth
And they add, angels often invest locally or regionally, since they tend to want to be involved in the company.
Are you angel ready?
Getting angel capital is not for every business owner. The ACA advises you ask yourself these questions:
- Am I willing to give up some amount of ownership and control of my company?
- Can I demonstrate that my company is likely to realize significant revenues and earnings in the next three to seven years?
- Can I demonstrate that my company will produce a significant return for investors?
- Am I willing take the advice from investors and accept board of director decisions I may not always agree with?
- Do I have an exit plan for the company that may mean I’m not involved in three to seven years?
When to approach an angel investor
While angel investors are more interested in funding startups and early-stage companies than banks or VCs, the ACA says it’s best to approach an angel when:
- Your product is developed or near completion.
- You have existing customers or potential customers who will confirm they will buy from you.
- You’ve invested your own money and exhausted other alternatives, including friends and family.
- You can demonstrate your business is likely to grow rapidly and reach about $50 million in sales in the next three to seven years.
- Your business plan is in top shape.
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Finding angel investors
Probably the best place to find an angel is an angel group. There are plenty of angel groups, and a good place to start is the ACA’s member directory. Ask other entrepreneurs who’ve been funded for recommendations. Since many angels tend to focus on their industries, your industry trade association may have some suggestions for you as well.
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