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Angel Investors: Netting A Miracle
by William A. Price
Contact
Information
William A. Price
Attorney at Law
wprice@growthlaw.com
They say your first million bucks is the hardest to make, but that’s because “they” don’t know about angel investors. An angel of the business world is wealthy, having at least a million bucks in liquid assets. In the search for ways to fund your business, an Angel is the third stage. First you take stock of your own resources, then you look to friends and family, then you look to an Angel. Informal investors like Angels do not generally want to be as involved in a business as new partners do, but they are more involved than alternatives like bank loans, venture capital corporations, or investors in publicly traded stock. Angels may be interested in helping at any stage of a business’s life, based on each investor’s personal preferences.
Is your business appropriate for angel investing? Most small businesses are. Since angels are millionaires, they can and do fund businesses with up to $500,000 needs. In return for this, they don’t usually need the tenfold return in three years typical of Venture Capital firm expectations. Instead, angels look for something more long term, over a five- to ten-year cycle. Since each is investing his or her own money, these investors take the time to nurture their investments and see things through personally. You can probably expect to meet with your angel regularly--and they are usually reliable sources of advice and connections. Angels usually know other small businesses, probably having invested in others besides yours. This gives them—and you--resources you wouldn’t otherwise find so easily.
To take advantage of this source of funding, you need to find an angel of your own. This isn’t as hard as it might sound. In the first two quarters of 2006, the last year for which comprehensive statistics are available, 130,000 Angels invested in over 800,000 US companies, according to the Center for Venture Research, University of New Hampshire. Each one invested in at least one deal, or continued in several. Angel investors accepted 12% of all deals proposed to them during that time, compared to the historical rate of 10%. According to William Wetzel of the Sloan Management Review, the active angels only make up about half of the potential angels in the US.
So, where to find them? Angels don’t flock, they perch with a very few others. The definition of angel is anyone with more than $1 million in net worth, apart from their house. So, look for people with businesses with sales of $1 million or more – more than 60,000 in the Chicago area – or the stock, financial advice, legal, and business services firms that advise them. Your “angels” are probably the same people as your key customers. For more information, including data on significant securities law rules you need to follow in looking for investments, contact the author.
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