What Are Angel Investors and How Can They Help Your Business

14 May 2012

When entrepreneurs want to start a new business, but don’t have the financial resources to do so, many of them seek out angel investors in order to raise funds.  Angel investors are affluent people who typically have a great deal of business experience and plenty of cash that they can put into a new business.  Angels differ from venture capitalists in that angel investors are using their own money and contributing it independently, not as part of a group like venture capitalists.   
On average, in the UK, angels donate about £42,000 per investment in which they participate.  Since it’s difficult for small business owners to get smaller amounts of money from venture capitalists, who usually prefer to invest amounts greater than a million pounds, angel investors make excellent partners for small businesses. Additionally, they come to the table with a great deal of knowledge about finance, business and law and they enjoy giving advice and seeing entrepreneurs succeed. 
Before an angel investor will even think of contributing to your start up, you’ll need to know how to approach them tactfully and in ways that show you are serious about your business plan.  They need to have full confidence in you before they’ll risk handing over piles of cash.  
Once you know of some angel investors whom you’d like to approach, you need to establish a connection with them, preferably through someone that you both know so that there is a stronger connection right from the start.
Try asking your friend to set up a meeting so that you can get to know the angel investor through your friend and then you can be on your own to set up future meetings. 
Never ask for funding within your first few interactions with the investor.  Wait until you have gained their trust and feel that they have a high level of confidence in you before you ask them for money. By this point they should already know about you as a person, your business plans and have met some of your team members, if any.  Make sure that you have a detailed business plan so that, when asked for it, you can provide it to the investor.  However, a good tip to follow is that whenever you are meeting with them in person, only have a summary of your plan so that you have a reason to make further contact with them.  
You’ll also need to have a good grasp on the amount of funding you’ll need, how long it will last and when you expect to start making a profit.  Without a good plan and budget, you can easily go through the investor’s money without making any real progress in your business. Having a solid plan will increase their confidence in you as a entrepreneur. 
Once you do approach the investor about helping your business, you’ll want to get an initial, non-binding agreement, written or verbal, from them.  This simply helps to formalize the partnership while they are initially excited about your business plans and, again, gives you further reason to contact the investor.  Try to get them to say that they’ll commit to a somewhat specific number like £20,000 to £50,000.  After the meeting, draw up a formal agreement to send over to them or present to them at your next meeting.  Getting an initial agreement will help you in approaching other angel investors since you’ll be able to say that you’ve already secured a certain amount of money from other investors.   
As with anything in business, a healthy dose of common sense will go a long way in creating and maintaining good relationships with potential angel investors.  Once you have found a group of angel investors that you’d like to approach, follow these steps and you’ll make an excellent impression on them.

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