Tag Archives: Angel funding

6 Tips on Angel/Crowd Funding and 10 Ways to Unearth Funders

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For a few weeks I’ve discussed numerous methods for funding your start-up business.  The most recent articles have included information on angel and crowd funding.  In today’s blog post, I’m passing along several tips in regard to the abovementioned types of funding and also methods you can use to find funders.

 

Tips for Crowd and Angel Funding –

  • Resist your desire to raise $1 from a million people.  Think about the maximum number of people you can manage while still protecting your vision?
  • Don’t take money from just anybody.  The funding you accept must be legal and should support your vision.
  • Stay in control of your company for as long as possible; be sure to only share that control with those funders who share your same vision.
  • Determine, in advance, how many shares you want to maintain control of before offering any equity to funders.
  • Map out an investor relations plan for term, communication and exits.
  • Investment terms should be communicated early on and in clearly outlined.  These terms should spell out what the investor is getting right now, how you reached this price, how it may change in the future, and your rights are in the event that there are further rounds of financing.  In particular, crowd investors must understand that an investment of $1,000 that represents 10 percent of the company at the time of investment,  will no longer represent 10 percent of the company if the company grows and gets new rounds of investments.

 

With these tips in mind, here are ten ways you can locate the funders that you need:

  1. Call your chamber of commerce
  2. Call a Small Business Development Center
  3. Ask your accountant or call a Big Four accounting firm.
  4. Ask your attorney.
  5. Call a professional venture capitalist and ask if he/she is aware of an angel investor group.
  6. Contact a regional or state economic development agency.
  7. Call the editor of a local business publication.
  8. Look at the “Principle Shareholders” section of initial public offerings’ (IPO) prospectuses for companies in your area.  This will tell you who cashed out big.
  9. Call the executive director of a trade association you belong to.  Ask if there are any investors who specialize in your industry.
  10. If you use a large commercial bank, ask your lender.

 

Now that we’ve spent time delving into angel and crowd funding, in my upcoming blog posts, I’m going to help you do some do diligence regarding Venture Capitalists funding your business.

Four Benefits of Angel Funding You Should Know and Consider

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Last week we left off talking about seed funding your business and the ups and downs of that option.  This week I’m going to discuss a couple other alternatives, beginning today with Angel Funding and the role it can play for your business endeavor.

Let’s assume that your business is up and running having used whatever seed funding you were able to pull together; but now you could use a little more cash flow to take care of growing business needs, i.e. bringing some staff on board.  You know that if you could just have an infusion of a larger amount of funding, the business could really take off; and you’d be good to go to that next level of success.

 

Angel Funding Benefits

  • An influx of possibly several hundred thousand dollars for up to three years
  • Collaborative partnerships bringing more than money to the table
  • Not as high maintenance as using Venture Capitalist
  • Less upfront risk for business owner because of lower cash investment

 

Having substantially more dollars flowing into the business for initial salaries and operating costs for the next 1-3 years can certainly be an answer to your prayers.  Naturally, with Angel Funding, there will be (in most cases) some dilution of your equity in the business, usually to the tune of about 20%. Unlike venture capitalists, Angel Investors are looking for a non-majority share in return for their investment.

One thing they will be looking for is to invest where they can see the founder of the company has kicked in “earnest money” as a way of showing that there is confidence the business is viable and has a future.  So before Angel Investors put any “skin in the game”, they are going to look to see what YOUR investment has been.

Although the monetary funding is a great advantage, Angel Investors also love to help in other ways, such as forging business relationships with those who have experience in your industry.  They may also know influential players in that environment and can help introduce you to networking opportunities, as well.  This is a terrific advantage when growing a business.

Angel Investors will want to have an exit strategy that will normally be an ROI of somewhere between 2 to 10 times what they’ve put in.  Full ownership of the business can be restored if cash from the business is used to pay back the investors, possibly even using the company’s profits to do so.  Although this may mean giving up a good part of your profit margin, this isn’t necessarily a bad thing.  After all, a small part of a big pot is not a bad deal.

So if you have dreams for your business that you can’t quite make happen with your own investment funds, Angel Funding should be a consideration.  With Angel Investors, you have more people in the game with you who are interested in your business being successful.  After all, it benefits them as well when the profits soar.  Not to mention the weight it takes off your shoulders having someone else to share the load.

Our next blog post will deal with the other funding option in our armory…the Venture Capitalist… and how going after that kind of investor compares and can affect the future of your business.

Three Key Types of Funding and Criteria You Need to Know to Finance a Business

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If you have come to the conclusion that financing your business is the most beneficial and…in the end…most lucrative option for starting or growing your company, you should familiarize yourself with the overall “funding landscape”.

Before I say more about the general landscape, I do want to address a few facts of which you should be aware if you are a female business owner. Albeit the rate of women starting businesses these days is twice that of men (women own 30% of privately owned businesses), statistics also show that:

  • Most female-owned businesses earn less than six figures
  • 30% of the businesses owned by women generate only 11% of business sales
  • If you’re a self-employed woman, you make 55% less than a self-employed man
  • Women seek less financial help for their businesses
  • Women historically have had less access to funding, but that is changing

Different kinds of funding sources often focus on financing businesses based on different criteria, such as:

  • The stage of the business cycle you are in
  • How much risk you’re willing to take (if you’re willing to take more risk, you have more opportunities)
  • What you already have in the way of financial resources
  • How much you want to control your company

As a rule, the more financing you need, the longer the funding process will take.  It’s important you’re clear on where your business is in the funding landscape:

  1. Seed Funding – getting things off the ground; often done by owner, family and friends
  2. Bridge/Angel Funding  – your business is showing signs of growth, revenue, and merit
  3. Venture Capitalist – when your business has signs of quick growth, as well as the potential for a quick return on investment

Keep in mind that there is no “right” or singular way to finance your business venture.  Although the pursuit of funding has been described by some as a “shark tank”, it should be comforting to know that there are definitely people out there wanting to invest in businesses for the right reasons (i.e. Crowd Funding).  Make yourself aware of the basic processes and do your due diligence.

Our future blog posts will expand on each of the three funding types, and explain the advantages and disadvantages for each one. Be sure to start thinking about the stage of business you are in and your risk level as you finance a business.