In the world of small businesses, there are many options on how to fund a company in the beginning and on an ongoing basis. These funding methods may include using personal finances, getting a business loan, or crowdfunding. However, according to small business strategist Bert Seither, one advantageous technique to ponder is to use an angel investor.
An angel investor, also referred to as an informal investor, is basically an individual with a significant amount of money who provides financial support to a startup business. Many angel investors don’t simply offer this capital out of the goodness of their hearts, however. Rather, they often provide money in exchange for a specified amount of equity ownership in a company or for convertible debt. Although many angel investors personally fund businesses out of their own pockets, funding from a business angel could come from other business entities, trusts, and investment plans in which an angel investor’s money is invested. Research has shown that startup companies funded by angel investors have a greater chance of being successful over time than those funded in other ways.
Although most angel investors tend to operate on an individual basis, there are some occurrences when these investors join forces to set up an angel group. Investors in angel groups can conduct research, share resources with one another, and put their funding together to offer a more substantial option for funding to startups. Plus, they can deliver valuable financial guidance to small business owners they are supporting, especially if these individuals lack experience in this area. This may seem similar to crowdfunding, but angel investors generally have more money in-hand, Bert Seither says.
The amount of financial support that an angel investor can provide to a company can vary quite a bit. Investors could provide a few thousand dollars up to more than a seven-figure amount in the million-dollar range. This obviously depends on the financial ability of the angel investor and the potential revenue generation of the business at-hand. This funding could come as a one-time initial investment, or it could be spread out over a specific timeframe. The industries in which angel-funded startup businesses are found also tend to vary. Research has indicated, though, that companies in the medical field have been funded more frequently than those in other fields more recently.
According to Bert Seither, the best way for small business owners to find an angel investor is to do research online. Directories provide in-depth lists of potential investors who may be able to assist in backing a startup financially. It may be difficult to sell a business idea to one of these investors, but financially-strapped entrepreneurs should certainly add this option as a possibility when trying to find ways to raise capital for a new or established business enterprise.