The Typical Angel Investor? No Such Thing!

Have you ever wondered where angel investors come from or what type of people you are going to present a business plan to? Is it a Donald Trump type of person – flamboyant and quite wealthy? Or is the investor someone more like your neighbor down the street who has quietly amassed a small fortune yet lives frugally? The truth is that the angel investor could be either person or a group of people.

The stereotype of an angel investor is someone who is a hardened business entrepreneur who has amassed great wealth but is always ready to create more. The image is of someone who swoops in, evaluates the business plan, does some inquiries and then funds a startup with the expectation of high returns. In reality, the angel investor may not be wealthy but is financially savvy.  Many are still employed but looking for a way to grow their money by promoting innovative new businesses.

Angel investors fill a gap that exists between the venture capitalist and the commercial lender. Venture capitalists and financial institutions lend larger amounts with the former willing to accept high risk and the latter expecting minimized risk. Many angel investors invest smaller amounts of money, $20,000 instead of $200,000, but there are no limits so $500,000 up to $2 million is possible. They don’t want to play an active role in the business, but do have business savvy. Mostly they just want to make money.

Angel investors are also groups of people who pool their money to fund startup businesses. They include investment clubs, professional groups like doctors or lawyers and even other entrepreneurs. The reason there is a bit of mystery surrounding angel investors is simply because they keep a low profile, so are difficult to categorize. What you do know is that they are financially savvy, thorough in their evaluation of businesses and hopeful of earning a high return on their investments. So don’t stereotype angel investors because they can be anyone.

More detailed information and useful advice can be found at www.funded.com Created by Mark Favre, it offers expertise and assistance with developing and funding your concept, including a private forum for queries and discussions. If you need access to investors and funding providers, please do check our website.

Enter the Angel Investors at the Startup Stage

Financing a small business is done in stages with angel investors usually funding startup expenses. The amount of startup funding needed is figured in the business plan financial section along with projected revenues. Startup funding is actually just one stage of business financing because a new business must be funded from idea conception to expansion.

Businesses operate on a continuum. Initially, seed money is needed to do the original product development, business filings, research and market survey. The  entrepreneur often gets the seed money from personal savings, family and friends, or personal loans. Some even use their credit cards or house equity. In other words, seed money usually comes from personal resources because at this stage the business is only an idea and the risk of losing the money is too high.

Once it’s determined that the idea can be turned into a solid business, the picture changes. The business plan is prepared and the enterprise begins operating. At this point, the first revenues are generated which establishes the fact that the products or services are market viable. It is at this stage, often referred to as the series A or first round investment, that angel investors are approached. However, sometimes entrepreneurs will look for outside investors who will actually pay for startup. In other words, the business doesn’t begin operating until funding is obtained from venture capitalists willing to accept higher risk investments.

Angel investors can also be approached during the second round or series B investment stage. This is the stage at which initial expansion after startup takes place and funding is needed for inventory, staff or marketing expansion.  Later expansions using angel investments would be referred to as series C, series D and so on. In this way, each investor knows by investment reference how their investment ranks in the history of the business funding.

Eventually, a successful business will look for a larger funding source like a bank to finance a major expansion. Angel investors play an important role in the launch of new businesses and enter the business at one of its most critical stages. It’s no wonder they are called “angels.”

More detailed information and useful advice can be found at http://www.funded.com/ Created by Mark Favre, it offers expertise and assistance with developing and funding your concept, including a private forum for queries and discussions. If you need access to investors and funding providers, please do check our website.

Accepting Economic Challenges Via the Business Plan

Addressing today’s economic environment in a business plan may seem challenging, but it’s also the perfect time to prove you’re up to the challenge. In fact, angel investors are aware that successful ventures in a tight economy are poised for expansion when the economy improves. Successfully starting, managing and growing a business when the GDP is expanding at a sluggish 3 percent (like now) or less is indicative of a business with high growth potential as the economy returns to normal. Though capital access may seem tight, making it difficult to obtain venture funding, the fact is that it’s time like these where some of the greatest opportunity exists.

For example, tight markets mean less competition for both customers and funding. The people who succeed in this type of economic climate are the ones who have solid business plans and excellent ideas. The general quality of brands is necessarily raised because only the best can compete. These companies are attractive to investors looking to fund companies with growth potential.

Another way to look at the business climate is that businesses able to develop business plans that accommodate tight capital markets are more likely to attract angel investors. The reason is due to the fact the investors will recognize that the financially conservative business is prepared for economic downturns as well as upswings. Too many business plans begin with unreasonable expectations given market conditions. Clearly showing how your business will succeed in tight economic conditions is, at the same time, showing how the business is prepared to successfully maneuver during periods of uncertainty or even setbacks over the long term. Compelling business ideas coupled with managed risk is an excellent formula for attracting angel investors.

More detailed information and useful advice can be found at https://www.funded.com/ Created by Mark Favre, it offers expertise and assistance with developing and funding your concept, including a private forum for queries and discussions. If you need access to investors and funding providers, please do check our website.

Dot.business plan for a Dot.com

Writing business plans to find angel investors interested in funding internet entrepreneurship is similar but not identical to writing proposals for brick-and-mortar only businesses.  A company that is going to be operated solely online still needs a strategic business plan that defines the business in detail, identifies market strategies to build a customer base, analyzes competition, lays out the operations and management plan and presents the financial plan. However, there’s a twist because investors will want to know how you plan on making your website stand out in a very crowded electronic superhighway and how you plan to attract and keep customers, who you will never meet, on the website long enough to spend money. There are millions of websites already up and running, but due to a lack of business planning they are virtually alone in a virtual world.

A strategic business plan for an internet based company must include the traditional business information, but it also requires planning for online design and content, online marketing strategies, website support and upgrades, online product ordering and security. Even planning for customer service has unique features in that contact will be primarily electronic. Angel investors will want to know how you will blend online and offline promotion strategies to insure maximum exposure. Internet marketing strategies address the marketing funnel in which customers are attracted to the website and then moved along a narrowing path to ordering and payment using a variety of well-designed enticements. A well thought out business plan for an internet based business addresses plans for accessing the right kind of business management technology to insure sales are captured using a virtual gateway and online shopping cart.

In other words, angel investors will review the business plan for thoroughness on two levels instead of one – traditional and electronic. Just because the business will be internet based doesn’t mean you can skip the traditional strategic planning. It only means you need to expand and integrate the unique features and requirements of an online business.

More detailed information and useful advice can be found at http://www.funded.com/ Created by Mark Favre, it offers expertise and assistance with developing and funding your concept, including a private forum for queries and discussions. If you need access to investors and funding providers, please do check our website.

Writing Business Plans that (Really) Matter

Business plans are not all alike and neither are angel investors, venture capitalists and loans. Then why do so many business plans seem like carbon copies of each other? Rubber stamping, so to speak, a business plan and only changing the names isn’t going to generate much interest among savvy investors. How many small businesses are ready to become the next corporate success story, but can’t seem to get investor interest? There are plenty, and many will never get a chance to find success because their business plans don’t pique the interest of angel investors or any other investor for that matter. The business plans are just too ordinary and fail to convey the uniqueness of the new idea, concept, product or service.

If you took a test and it said to name the most common mistake made on business plans, would you know the answer? The answer is: The business plan begs for money but doesn’t beg for understanding. A business plan is much more than a plea for money. It’s a driver’s manual that defines goals and objectives while providing the road map to a new destination. If the directions are clear and point right towards what makes your idea market unique, investors can’t get lost on their way to the endpoint. That’s where the financing waits. Focus on what makes your concept unique and prove you have carefully thought through the components of success – people, opportunity, context or relationship to industry and market, risks and rewards. In other words, write a business plan that really matters and not just one that fills in the blanks and makes a pitch for money. Don’t be ordinary…be unique. It’s what entrepreneurship is all about.

More detailed information and useful advice can be found at http://www.funded.com/ Created by Mark Favre, it offers expertise and assistance with developing and funding your concept, including a private forum for queries and discussions. If you need access to investors and funding providers, please do check our website.

Meeting the Expectations of Venture Capitalists

Entrepreneurs seeking venture capital often approach the market a bit naively. Though there are similarities to applying for funding through traditional lenders, there are also some differences. For example, venture capitalists can set any terms they want whether they fit traditional funding models or not. For example, a bank may require returns that are 5 times within a 5 year period. The venture capitalist may require 8 to 10 times within that same time period.

Successfully obtaining venture capital requires being fully prepared to meet the special demands of venture capitalists. Since these are private lenders, they can set the bar high in order to lower risks. The venture capitalist wants to know if you are going to make money, how long it will take to see investment returns, what kind of track record or related experience you have, and whether the company management team is competent, innovative and forward thinking.

If you can answer these questions successfully, there’s a good chance you will attract funding. However, matching the company with the right investor is critical. Term sheets detail the proposed agreements and at this stage it is critical that each side ask the right questions, come to a full understanding of expectations, and agree to valuation. There should not be any major surprises during the final negotiations once the term sheets are agreed upon.

Keep Your Deal Sweet and Not Sour

As odd as it may sound, you can select the wrong venture capitalist if you do not clearly explain your business model in terms of how you plan on operating and what your long term goals are for success. It’s not a matter of fabrication, but more a matter of clear communication. A deal can go sour really fast if the venture capitalist discovers during final negotiations that the company management really plans on taking a different growth path than was explained or has plans that were not divulged and could potentially adversely impact operations.

Viewing End Goals Through Valuation

If this seems obvious then you would be surprised how many negotiations fall apart even after terms sheets have been agreed upon. One of the main areas of contention is business valuation. Business valuation is normally figured by determining the discounted cash flow and then adding the residual value of the business. The projected cash flow will extend to the end of the agreement because that is the period in which the venture capital funders expect to get their money back.

Of surprise to many businesses applying for venture capital is the fact the venture capitalists will value their business much lower than the business believes is accurate. However, the venture capitalist viewpoint is one of minimizing risk and earning a profit while a business is anticipating growth and profits and is willing to take risks to achieve their goals. The business and the venture capitalist have the same end goals but will approach valuation differently while deciding if it is possible to reach those goals. Want more info or assistance? Visit http://www.funded.com

Control and Angel Investors

As you consider the various types of funding for a new businesses or business expansion, one of the important questions that arise concerns control. How much and how often will the angel investors get involved in your business once the funding is approved? The answer depends on a lot of factors including the negotiated terms and the success of the enterprise that is funded.

Many angel investors aren’t interested in having a say in day-to-day operations. They simply want you to accomplish what the business plan said you would accomplish and earn the investment return that is expected.  The investors know what progress is being made because you will have to submit financial and performance reports on a pre-established basis. This is true for all types of investors whether they are angel investors, equity partners, venture capitalists or banks giving business loans

Security Issues

Control issues really come down to how secure the angel investors feel about the success of your enterprise.  Though it goes without saying that investors approving start up funding or business funding for expansion believe the projects will succeed, they are savvy enough to know there is always a degree of risk. The higher the risks, the more control the angel investors will require.

A solid business plan will be realistic and a profit must be shown at some point even if not the first year or two. The best plans though are not guarantees the initial forecasts will be met. The types of control angel investors may require include the following:

  • Passive investing in which investors providing business funding rely on the quarterly, monthly and annual reports and have virtually no contact with the business management or board of directors
  • Passive investing in which investors are available for consultation when requested
  • Active investing in which angel investors sit on the board of directors and have full voting rights
  • Active/passive investing in which the angel investors advise the board of directors as mentors
  • Active investing in which the angel investors assume an executive management position like Chief Executive Officer

The Full Gamut of Control

As you can see, angel investor control runs the full gamut from no participation to running the company.  Some investors will take control of the majority share of stock to gain full control of the company like equity partners; however, that is not the preference of most angel investors. They are not investing to become business owners, but rather to make money. In addition, if there is more than one angel investor, the group may designate a single representative as the primary contact.

The control issue can be one of the more difficult areas to negotiate at times. Though an entrepreneur needs money, he or she doesn’t want to give up control of their vision or dream. You can take care of that issue by submitting a solid well thought out business plan that is realistic.

More detailed information and useful advice can be found at http://www.funded.com.  Created by Mark Favre, it offers expertise and assistance with developing and funding your concept, including a private forum for queries and discussions.  If you need to access a vast network of business people, entrepreneurs, partners and service providers to help you start, finance and run your business, check out http://www.funded.com.

In The Eyes of an Angel Investor

One of the best ways to prepare for a search for startup funding by angel investors is to pretend you are one.  Investors have money they are willing to put into new enterprises, but they also want to minimize their risk as much as possible even with the understanding there is always a certain higher risk associated with a new business. If you consider what you would require if you were investing personal funds, the element of risk becomes much clearer and you can hone in on what information you need to assemble to prove your venture is a good investment.

The truth is that funding requests in the form of business plans submitted to any type of investor, whether for venture capital or to equity partners or to angel investors, should focus on answering questions before they are even asked. So it only makes sense to ask yourself the questions first as if you are investing your own funds.

It can be difficult to look at a new business with an objective eye when you are excited about a new idea, and it’s your business under the microscope.  Looking at the proposal from the angel investor’s viewpoint can help you keep your proposal targeted on the ultimate goal which is new funding.

Question: Am I It?

In the eyes (and mind) of an angel investor approached about a potential investment, your new business is untested.  The initial questions that will arise include:

  • What other potential sources of business funding is available to the new enterprise?
  • Could the startup business find funding through more traditional sources like business loans?
  • How long has the entrepreneur been looking for funding and is there any interest in the project by other investors?
  • Is it possible that several angel investments could be pooled to establish business funding while spreading the risk?
  • Is the entrepreneur asking for funding able to prove that he/she is a legitimate requestor with a solid business plan and not simply an “idea” person who has trouble following through?

These types of questions are just the beginning of a detailed analyzation process. Angel investors considering startup funding will want comprehensive information about projected income and expenses, marketing, project team members, business organization, a SWOT analysis, management, legal matters, future capital needs and more.

Question: Is Break Even in the Picture Anytime Soon?

One of the reasons some entrepreneurs are unable to attract any type of investment including venture capital, equity partners or angel investors is because they have not looked past the initial startup. Lack of capital is one of the main reasons small businesses fail according to the Small Business Administration. In the excitement of bringing a new business idea to the marketplace, the details are overlooked like when will the business break even?

Question: Do You Have Answers Prepared

Pretend you are the investor as you prepare your business plan including the financial section. What would you expect to get answers to before approving any investments or business loans? If your business plan doesn’t answer those questions about your venture then angel investors are going to see the proposal as too risky before it even gets off the ground.

More detailed information and useful advice can be found at http://www.funded.com . Created by Mark Favre, it offers expertise and assistance with developing and funding your concept, including a private forum for queries and discussions. If you need to access a vast network of business people, entrepreneurs, partners and service providers to help you start, finance and run your business, check out http://www.funded.com.

Attracting Equity Partners for Strategic Success

Two of the main reasons an entrepreneur or business may want to attract equity partners for business funding are: 1) to fund a particular project, or 2) to fund general business operations for the purpose of advancing the goals established in the strategic plan. It is critical that you precisely define your reason for needing additional investment dollars to insure that you target the investors most likely to fund your financial needs.

When you talk about funding a particular project, the word “project” takes on a broad meaning. A new project can include introducing a new product line to the marketplace or buying another company that sells products or services that will enhance your current company market position. A new project can also include expanding sales into foreign markets or expanding production.  Also qualifying as a new project would be the acquisition of equipment that will strengthen the company’s ability to meet customer demand.

On the other hand, equity partners may also agree to fund company operations based on a long-term strategic plan. Instead of a finite project, the investors may agree to provide startup funding for a new business that is equivalent to venture capital. Unlike most venture capital and business loans though, the equity partners will take part ownership of the company and participate in the management of the business.

Minority or Majority Ownership

What makes equity partners different from other types of investors like angel investors or venture capital is that the institutional or private equity investors will require a share in the ownership of the business (thus the use of the term ‘equity’). When the equity partners invest in a project, they will remain business owners usually up to the point the project is completed and the expected returns have been earned.  In these types of funding arrangements, the equity partners are often willing to take a minority ownership share.

When the equity partners offer business funding for general strategic operations, the requirements often include taking a majority share in the company. This makes sense if you consider that the equity investors are putting cash into the company with the expectation operational expansion or revisions will lead to higher profits in the future. The longer term nature of this type of funding naturally means the equity partners will want to control operating activity.

In the final analysis, it is clear that there are equity partners willing to consider almost any type of business financial need including startup funding.  One of the steps a business should always take when preparing a request for funding is to consider the various investment alternatives including business loans or angel investors that can fund the type of activities whether they are project based or based on strategic operations. If searching for equity partners is the best option, the business plan will be written to make it as attractive as possible to that particular type of potential investors.

Learn more at http://www.funded.com. Created by Mark Favre, it offers expertise and assistance with developing and funding your concept, including a private forum for queries and discussions. If you need to access a vast network of business people, entrepreneurs, partners and service providers to help you start, finance and run your business, check out http://www.funded.com.

Start Up Business Funding – Don’t Take No for an Answer

Your cousin Lou has told you that he wishes he could help out but start up business funding is out of the question. There’s the mortgage to pay and gas prices are rising and the kids need braces and on and on the excuses go. You received the same answer from Aunt Sally, your best friend Dave and even your own father. You have a great idea for a new business but can’t seem to convince anyone to help you get it off the ground.

Many entrepreneurs are rich in great ideas and have plenty of enthusiasm and a willingness to do what it takes to succeed. But desire and excitement are not dollars, and that is what is needed to get any business off the ground. Finding startup funding can be one of the most difficult challenges faced.  You haven’t proven yourself to potential investors, but you can’t prove yourself unless they give you business funding. It’s the proverbial catch-22. It reminds you of the time you were looking for your first job and the employers told you that you had to have experience first!

Plenty of Options for Those Who Persevere

Many entrepreneurs exhaust all of their own money before they even start looking for outside investors for start up business funding. If you were lucky enough to convince some of your family and friends to invest in your new business, there is still a good chance it was not enough money. That means you have to find other sources of funding in order to take the business to the next level which may include buying inventory, purchasing equipment, or making the next 6 months of payroll. The thought of your business never getting off the ground or coming to a screeching halt is distressing to say the least.

Fortunately, you have plenty of options when it comes to funding sources. Given the complexity of convincing financial institutions or private investors to invest in a tight credit market and limping economy, it is always best to get professional assistance. Gaining access to a network of funders is critical, and like any “private” club you need an introduction.

What are these sources of funding?

  • Angel investors and angel organizations – Earthly angel investors are really private investors willing to invest their own funds in fledgling businesses. The often invest in the form of equity or convertible debt. They truly seem like angels when you need funding, but these angels are investing because they believe they can get a higher rate of return by investing in your company as opposed to investing in traditional financial tools. Many angel investors are also interested in promoting businesses in which they have personal experience or a special interest.
  • Business Loans – These are loans from financial institutions like banks. Despite what you read, the banks are lending to businesses. But since credit is still tight due to the recession, you improve your chances of success by accessing those banks with a record of lending through the recession. That is where a professional can be of invaluable assistance in locating funds domestically or globally.
  • Venture Capital – Venture capital is money that is loaned by a venture capital firm or individual. Larger amounts usually come from firms. These firms are often looking for start-up businesses that have high potential for fast growth and early returns. They take an equity position in your business meaning the venture capitalists take part ownership. But there are innumerable ways to structure the financing and equity arrangements so don’t rule out this type of  funding as a possibility.
  • Equity Partners – This is start up business funding in which private individuals invest in your firm in exchange for part ownership.  Ownership can take the form of stock ownership, but in some cases the investor may want to be involved in a way similar to a partner.

Make No Assumptions

There are numerous types of start up business funding as you can tell. There is no reason to assume that since you are a new business that money is not available from traditional sources like business loans or non-traditional angel investors.  You can pursue startup funding from equity partners or venture capital firms. And while you are looking for business funding, you should go ahead and ask your cousin Larry if he is interested. He just might be the first one to say, “Yes.”