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Entrepreneur's Journal: Raking in cash from angel investors

Posted Apr 5th 2009 6:30PM by Tom TaulliTom Taulli RSS Feed
Filed under: Small business

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No surprise, angel investors are getting cautious. According to a report from the Center for Venture Research at the University of New Hampshire, there was a 26.2 percent fall in angel investing last year, to $19.2 billion. The number of transactions dropped by 2.9 percent to 55,480.

However, this does not mean you should avoid angel investors. After all, there was still a good amount of activity last year. In fact, if the markets continue to improve – as well as the economy – then there could be a pickup in angel investing this year.

"Valuations have come down noticeably, but good companies are still getting funded," said Eric Ries, who has raised money from angels and operates a startup blog. "Angel investors, who provide the critical early-stage high-risk capital for startups, are increasingly looking for traction in the companies they invest in. Most of the angels I know define traction as progress in validating the riskiest fundamental business assumptions of the company. For some companies, that's really about revenue and revenue growth."

So, how can you benefit?

Well, first of all, let's get some background. Basically, an angel investor is a wealthy person, who has some type of business background, such as being an executive or successful entrepreneur. So an angel can bring more than just money to the table. They can help provide helpful advice as well as make key introductions.

Also, a typical angel will invest between $10,000 to $50,000. The main reason is they want to diversify their money across various deals. Besides, they want to get a decent chunk of equity for taking on the risk.

Now, keep in mind that angels often belong to investment groups. By doing this, they can see more deals and get help on due diligence. You can find a list of angel groups at Angelsoft.

If possible, try to get a personal introduction to some of these groups. From there, you will give an initial presentation. And, if the angels like the opportunity, they will ask for another presentation and then start doing some research on the company. The process can easily take six months.

Something else: You need to spend time crafting an executive summary and PowerPoint (known as the "pitch deck"). In it, you need to clearly demonstrate the business model, key team members, the market size, the competitive landscape and the differentiation.

But, there are certainly resources that can help out, such as Palo Alto Business Plan Pro Premier Version 11.0. What's more, sometimes members of the angel group will help out. Although, you want to make a good first impression, so make sure you put together a solid presentation that gets attention.

Tom Taulli is the author of various books, including The Complete M&A Handbook and the founder of BizEquity, a free online business valuation tool for small businesses. You can reach him on Twitter.

Tags: Angel investing, AngelInvesting

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Last updated: November 27, 2009: 02:59 AM

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