For
any entrepreneur, young or old, there a million important things
involved in launching and developing a successful business or product. 
Above all you must have passion, and the willingness and determination
to see your genuine idea reach a stage of fruition.  On the more
logistical end, money is another primary and vital factor in the
development of any burgeoning business or services venture.

Traditionally, there are three recognized sources of funding for seed
stage / start-up ventures, these are: angel investors, venture
capitalists, and commercial banks.  Amongst these three, angel investors
most commonly invest in early-stage ventures, providing a financial
base with a high-risk cost to themselves.

Angels, individuals of some considerable means, are people committed
to seeing young businesses flourish.  Angels accept the early risk; they
have the financial assets to withstand losing their investment, and
tend to act in an advisory role to the entrepreneur or business founder –
offering invaluable experience, advice, and contact information.

In this study, we will examine the roles of angel investors, compare
angel investors to venture capitalists, and create an overview of
early-stage funding for entrepreneurial enterprises.

Angel investors got their name, because their investments,
originating in Broadway musicals, seemed like money from the sky. 
Angels are individuals who meet the definition of an accredited
investor.  The key here is that angels are individuals – angels use
their own personal wealth to invest in various enterprises.  Above all,
angels wish to see a lucrative return on their investments, especially
considering the high-risk they undertake by investing at such an early
period – for angels, a strong exit opportunity is extremely important as
a means of realizing gains on their investment.

In terms of seed stage / start-up ventures, angels tend to be the
best early investors because they provide more modest financing than
venture capitalists.  Venture capitalists, who invest third-party money,
and therefore cannot be patient in terms of return rates on
investments, generally only invest in later- or mature-stage
enterprises.  However, when venture capitalists do choose to invest in
early-stage / start-up ventures, the sums that they generally offer are
far greater than required by the young enterprise.  These sums
constitute a majority percentage ownership of the company; therefore,
the entrepreneurs and management teams of these young companies loose
control over their own ideas.  Angels choose to invest modest sums over a
diversified number of ventures, thereby augmenting their individual
portfolios and lessening the severity of any potential loss.

As an entrepreneur you must be aware the angels will not blindly
invest in any idea or business scheme.  It is important to have a an
extremely well-written business plan that includes stringent financial
projections, that you are prepared for due diligence processes to be
performed, that you have your own money invested in the enterprise, your
corporate structure is clear and does not include multiple layers of
ownership, and that you are constantly generating new ideas and bringing
them along to the prototype stage.  Furthermore, angel investors and
venture capitalists alike are not interested in enterprises with limited
growth, or without a strong market focus and potential.  Angels and
venture capitalists like to invest in enterprises that are seeking to
grow and have a strong path to marketability.

Foundationally, angel investors were most likely young entrepreneurs
at some point themselves.  Angels wish to invest in industries that they
know, and industries that are near to their respective communities. 
Angels enjoy seeing growth in the field in which they developed success;
therefore, angels will invest in these same industries, bringing
entrepreneurs, besides funding, experience, industry knowledge, and
valuable connections.

Angel investors are renowned for their patience when funding a seed
stage / start-up venture.  Angels tend to allow for a three to seven
year period, during which time the company’s products, market, and
management all reach stages of maturity and are nearing the point of
being acquisition-ready.  In addition to the first round of funding,
angels have begun to retain their investments for future rounds of
financing.  For angel investors, the primary exit strategy is through
merger or acquisition – providing the investors with cash or liquid
stock.

The angels, who despite their patience and willingness to help the
young company flourish do have reasonable expectation of return on their
investment, generally do not accept common stock, opting for preferred
stock – traditionally held for venture capitalists.  Angels are
professional investors, and as an entrepreneur you must be respectful of
their experience and their knowledge – doing so, only adds value to
your burgeoning company.  Though the risk is high, angel investors are
generally willing to support young businesses, not only for the
lucrative returns, but also for the love of business and the growth of
enterprise.

——

About the Blogger:

Anna is a founder of NYCrentals.com, a real estate search engine for
rentals in Manhattan. She also owns a vertical search engine in Russia,
Poland and South Africa. Prior Anna was took Bio tech companies to IPO
in Frankfurt, worked in Barclays Bank in London and sold private jets.
She loves launching new start-ups and sharing experiences with other
entrepreneurs worldwide.

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