< Back to index Raising Capital: Angel Investors Need financial backing for a start-up or to take your company to the next level? Angel investors (wealthy individuals with business savvy who are interested in private investing) may be the answer. But you better do your homework. With an estimated 2 million angels nationwide, accessing dollars might seem easy. But of those 2 million, only 250,000 are currently investing, to the tune of $20 billion annually. Meanwhile, 300,000-plus companies are seeking funding from these private sources. Positioning your company to attract angel investors is the key. At a seminar hosted by the Rocky Mountain Internet Users Group, Marcia Schirmer of Colorado Capital Alliance Inc., an angel network that provides confidential connections between investors and high-growth companies, laid out some ground rules. What do the investors want? • They are interested in all growth stages of ventures. • 82% expect a role in the venture, such as a position on the board. • Dollars invested range from $50 K to more than $1 million. • 18 of 20 investments don't produce a positive return. • Internet-based companies are now one of the hottest areas of interest. • The cost of investing for angels is high (such as due diligence or patent attorneys). Entrepreneurs seeking funding include service, telecom, computer, Internet, and manufacturing firms. Nearly a third provide seed money, 46% invest in the early stages of ventures; and 23% fund mid-stage or established firms. More than 50% of the ventures funded have sales. Structure of Deals Angels like to invest together for added security and to maximize their varied expertise (called "cluster" investing). The size of the equity stakes they take depends on perceived risk of the investment. The average national venture capital stake is now $5.5 million. Groups include the "Band of Angels" in California, an "informal" angel network, and Garage.com, an Angel-matching service on the web that is for-profit. Colorado Capital Alliance is a not-for-profit that matches investors and companies through a proprietary database. They have placed $4.3 million since forming two years ago, and are currently funding about 12 deals. A common thread running through deals is investor confidence in the founder of the venture and gut instinct. "People invest in people," Schirmer said. Angels tend to invest close to home (within a half-day drive), and they want entrepreneurs who can move quickly, staff up, anticipate, and navigate the transitional stages of growth. Internet companies are hot in the investor community with more experienced investors now funding these ventures, but less seasoned investors continue to invest as well. The key issue for entrepreneurs is preparation. "Be ready to answer the phone call," advised Schirmer. Don't present valuations of your venture that are sky high. In terms of the capital you request, remember that you'll spend 5% of that capital before you get it. "After you figure out what you need, double it," she said. Show that you're prepared to deploy the capital; for example, 40% for marketing, 60% for operations. Don't think in terms of "giving away" a percent of your company. Remember that if your deal works, everyone can be happy. Due diligence is a two-way street. Ask for info/references on the investor while providing info in return. And remember to have a clear exit strategy (not just, 'we'll do an IPO'). There's a lot of money out there in the angel ranks, but entrepreneurs should carefully lay the groundwork before they approach angel networks, Schirmer stressed. Colorado Capital Alliance is funded through service fees, publication and seminar sales, and corporate sponsorships. The network hosts private investor seminars and has published a book for business angels in keeping with its focus on educating investors. The Alliance's book, Business Angels, A Guide to Private Investing, sells worldwide and was recently reviewed in Money Magazine. For more information on the Alliance, visit their web site at http://www.angelcapital.org or call Marcia Schirmer 303-499-9646 or Gale Dunlap 303-440-1356. < Back to index News I Health I Wellness I Exercise I Profiles I Business I Links I Women ROCK! Product Review I To the Point I Contact I Home Created by: Art Street Design Studio. © Concerning Women Communications, Inc. all rights reserved.