Sometimes, big venture capital firms are not the answer to funding your start-up. A good alternative is angel investors.
Angel investors are usually wealthy individuals who want to invest in a start-up with their own money in exchange for convertible debt or ownership equality. Contrary to popular belief, angel investors are not that hard to find. Here are a few places where you can start your search:
- Your personal network. An angel investor can be anyone with enough money to be able to believe and invest in your start-up. Ask your friends, family members, or other connections: maybe they happen to know such a person.
- Attend events such as the International Start-Up Festival, where angel investors can often be found. The goal of these kinds of events is to facilitate the connection between entrepreneurs and angel investors. Make sure to print out some business cards and rehearse your elevator pitch!
- Browse online directories to find angel investors near you. The biggest and most important directory of angel investors is AngelList. With the growth of the Internet, angel investors are now easy to find: check out some local sites like Anges Quebec, and connect with an investor you are interested in.
You may be wondering why you would want to trust an angel investor? Although they are individuals rather than firms or banks, angel investors do have their benefits:
- If your Startup is not in the Tech industry, a VC investor will be hard to find. Angel investors however, tend to invest in many different verticals, so you can broaden your start-ups financial access.
- The selection process and due diligence is done relatively fast, so you can expect your money to arrive quickly. Also, it will most likely arrive in one large payment, as opposed to meeting certain benchmarks for installments to be made.
- Angels can be more accessible when larger firms: since you are dealing with an individual, it is easier to build a connection and see what they are interested in. Remember they can be living a block away from you!
- Angel investors are more likely to take big risks: as they either have experience with entrepreneurship or have a personal relationship with you. They understand the implied risks and will not constrain you as much as financial institutions would.
Sounds like a good deal, right? However, despite their benefits, angel investors also have disadvantages:
- As they take a lot of risk and invest personal money, angel investors expect a very high rate of return, sometimes over 25%.
- Since they are investing their own money into your start-up, angel investors will want to be kept informed of all of your company’s actions and decisions. You investor may also feel entitled and will want to take an active role in your start-up’s decision making process.
- Your investor’s money is not a loan, so you don’t have to repay it. Although this could also be an advantage, it will lead you to lose money if your start-up is extremely successful. You will have to give your angel an equity for the deal, which could add up to a lot of money in the long run.
Angel investors are good alternative if you can’t, or simply don’t want to deal with big venture capital firms. However, make sure you pick your angel investor wisely, and consider all aspects and consequences of the deal before you make a decision. Remember that although angel investors seem like a sweet deal, it may lead you to losing money or losing control of your start-up in the long run. As always, do your research.
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