In some cases, especially if you are raising many millions of dollars, many of your investors will have to meet the SEC’s criteria of being “accredited investors.” Only your attorney, one who is experienced in securities law, can advise you on this. For more information on SEC accreditation, including who is exempt from the definition, visit www.sec.gov/answers/accred.htm.
While the SEC’s definition of “accredited investor” is still in use, it dates back many years and experts argue that a more realistic evaluation of a person who can afford to lose money by investing in new ventures would put the net worth of the average angel in the $3 million–to–$5 million range.
Your angel investor may not fit the SEC criteria but may still be a good bet. Your rich Uncle Bob, for example, may not be worth $1 million, but he might have extra money; be willing to risk it on you, his favorite relative; and believe in you and your business idea.
It’s not always easy to find out about an angel investor’s financial status. Do what you can to reassure yourself. See page 38 for more on how to conduct “due diligence” on potential investors.
1. Networking
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Your Number One Prospect
Your best bet for finding an angel investor is through someone you already know. Perhaps you’ve done business with them in the past or maybe they’ve invested in one of your former businesses. If someone already knows you and trusts your judgment, you are far ahead of the game in terms of getting their help.
Networking to find an angel works best when you approach it in an organized fashion. Evaluate everyone you know as a potential investor—or, more likely, as a connection to a potential investor. Make a list of the people you know who can either help you directly or lead you to someone who can.
Go through your address book, database, and contact management program. Begin with any current or professional connections, past employers, employees, and colleagues. Go through lists from any organizations you belong to: alumni associations; churches, synagogues, or mosques; community or entrepreneurial organizations; even your children’s school associations.
Keep all potential doors open when thinking about people who might lead you to an angel investor. They are not always the obvious choices, such as bankers and lawyers. Your child’s soccer coach, your golfing buddy, or even a book club member may know just the right investor for you.
Go to conferences and events where potential investors or industry experts will attend or speak on panels. Talk to them at coffee breaks or over lunch and tell them about your business. Even if they aren’t the right match for you, they may know of an investor who is. Identify potential investors the same way you would potential customers—cast your net wide!
Think about groups in your community with which you would have a natural affinity, because of shared interests, beliefs, or background: businesswomen’s organizations, a local Hispanic entrepreneurship group, or a gay business persons’ forum. Groups like these may also have leads for you.
How Long Will It Take?
Finding an angel investor takes time. The time you spend looking for investment funds is time spent away from running your business. Factor this into your planning and consider delegating some, or possibly all, of the fundraising work to one of your partners or a trusted advisor.
Begin with People You Know
Start close to home when you begin networking and approach:
Your accountant
Your financial planner or financial planners you know
Your attorney or an attorney you know who specializes in investments
Your banker
Any high-net-worth individuals you know
Business owners
People you know who have already secured angel investment or venture capital
Remember, these people may or may not be potential angel investors themselves. However, they may lead you to others they know who are potential angel investors.
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Benefits of a Business Plan
No angel investor will consider funding a company without seeing a business plan first, but there are other reasons why putting a business plan together is good for you and your enterprise. An effective business plan saves you time and money by clarifying your goals and focusing your activities. And the process of creating the plan will prepare you for the questions any angel will ask when you pitch your proposal.
The Approach
Call or email your contacts and tell them you’d like to take them to lunch and ask their advice and get their input about a business you’re in the process of developing. If you are speaking with them on the phone, they may want to know right away what you have in mind, so have a succinct description of your business concept prepared to pique their interest. Your goal, however, is to meet with them in person. They’re more likely to spend the time thinking of people who might help you when you’re in their presence.
Don’t be surprised if they ask you to send your business plan or an executive summary to determine whether they’re interested in talking further with you or helping you network to find angels (see pages 54-55 for more on preparing a business plan and executive summary).
Once you’ve secured the appointment, take a printed version of your business plan to leave with your potential angel. It’s also a good idea to take a PowerPoint presentation that gives an overview of your business concept and market. (See pages 61-90 for more on presenting your business concept.)
What to Ask
When you’re meeting with people who can lead you to potential angel investors—or who are potential investors themselves—ask them some or all of the following:
I’m looking for an investor in my business. Do you know anyone who might be interested?
Have you ever been an angel investor or invested in someone else’s business?
Would you consider looking at my business plan?
Did someone invest in your business to help you get started? Do you think that person might be interested in investing in my business?
Are any of your clients/customers active in investing in new companies? Would you be willing to introduce me to them or to send them my business plan?
Do you know of anyone else I should speak to? May I use your name when I contact them?
Would you consider passing my business plan on to some people who might be interested in investing in my business?
What might it take to have you invest in my business?
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