Business Opportunity Seekers: Angel Investor

So-called “angel” investors are generally individuals who are business opportunity seekers but, unlike many venture capitalists, invest their own money. Sometimes they are found by way of professional associations or professional networking sites. Other times they can be found simply through social business networking or other professional networking groups. Over the last several years, they have become a more prominent source of investment capital for small business. But like any form of investment, angel investors have their good points and their bad ones. If you’re considering seeking angel investment money, or are already negotiating with one, there are a few things you might want to consider.

Motivation

Angel investors often have more diverse motivation than traditional venture capitalists. Sometimes it can be as mundane as a retired business person that is looking for an opportunity to keep up with an industry. Other times, it can be a special hot button the investor has – a special interest for example, like cares, or energy, or sustainability. Whatever angel investor you deal with, make sure you know their motivation.

Returns

As a generalization, angel investors seek a greater return on their money than what they could find in conventional investment sources. Because they know that many businesses fail, they will seek much higher returns to cover losses. This is not significantly different than venture capitalists; however angel investors may have a smaller portfolio over which to spread their losses. It’s a good idea to ask directly what type of return your investor may be seeking.

Hands On or Hands Off

To many angel investors, their investments are “personal”. That means that if they are concerned about their investment they are more likely to be “in your face” about it earlier rather than later. Some may also want to be directly involved in the management of the company – often a board position, but sometimes more than that. Depending on the investor, that may be an excellent thing or a real annoyance. Whatever their style make sure you know up front. It wouldn’t hurt to talk to the founders of other companies that they may have invested in.

The Upside

There are a lot more angels than there are venture capital firms. They also have more “customized” or flexible investment criteria and can hook you up with other angels as well.

The Downside

At some point, like all investors, angels want liquidity. Often, they will require certain provisions or guarantees from you to provide them a specific exit. If you have different objectives this could be a big problem – and likely a legal problem.

Like any other investment or entrepreneurial resources, there are good aspects and bad. Always make sure you have carefully considered both before entering into an investment relationship.