Angel Investors 101

By Shane Starr

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A STARTING POINT

From the very conception of an idea for a new product or business, among the many questions that go racing through you mind should be "How will I realize this dream? Where do I go from here?" Often you may feel grounded with entrepreneurial roots yet lack the wings to make your idea soar into the marketplace, or better yet, create a marketplace.

PROFILE OF AN ANGEL

Angel investors can be an essential channel to sustain your business flight plan. But how do you find an angel? Who are angel investors? What are they looking for? How does one get into the mind of an angel investor in order to inspire them to invest in your idea? One must first become intimately aware of a typical angel's profile.

FINANCIAL PROFILE

An angel investor must have a net worth of over $1,000,000 to be an accredited investor and they generally make in excess of $100k per year. According to Ellen Sandles, Executive Director, Tri-State Private Investors Network, angels' contributions can vary from venture to venture but the majority will invest between $50k and $100k in a deal. Since angel investors are more accessible and more abundant than VC firms, this can be an advantage. Joe Kraus, one of the founders of Excite who has been an angel investor and advisor to numerous startups stated that more people can and will be entrepreneurs than ever before; "A lot more people can raise $100,000 than raise $3,000,000 (which was the startup capital required for Excite)."

A (IN)VESTED INTEREST

First and foremost, feel comforted in knowing that angels are generally like you! They have most likely come to be wealthy in an entrepreneurial way and seek more than just a lucrative ROI, they seek to contribute to a cause as well. Angels are also usually more apt to invest in a given industry that they themselves are familiar with. It is more comforting to an angel to put a large sum of money in a cause that they can personally be involved in and understand than to throw it at something completely foreign to them.

THE CATCH

In exchange for capital during a more risky stage of a business, an investor may expect up to around 10-30 percent ownership in the company depending on the business valuation and investment sum. They generally expect to hold on the investment for around 5-7 years. At that time they will wish to liquidate the investment. See what Susan Ward, a small business consultant, wrote about the vitality of an exit strategy:

'While angel investors are patient and willing to make long-term investments, they need to see how they're going to reap the return on their investment. The sale of shares to the company's principals is a common exit strategy for angel investors who hold equity ownership positions; the sale or merger of the company is a common exit strategy for debt-holding investors. Don't be surprised that your prospective angel investor wants a time-frame set.'

Giving an investor an exit strategy for optional liquidation during the initial investment proposal can prove to be crucial.

This article can be seen in full in the blog section of cloudstart.com.

Shane Starr is currently Director of Marketing for [http://www.cloudstart.com]. Since the latter part of 2001 Cloudstart.com has been providing the means for angel investors to link with entrepreneurs with promising business plan ideas. By seeking strong relationships in the angel investor space Cloudstart has sought to become a leader in linking new ideas with start up capital. The entire venture capital industry has long been a somewhat mysterious place for some entrepreneurs and sometimes a difficult network to break into. Our entire goal at Cloudstart is to give your business plan visibility with as many accredited investors and accredited investing entities as possible.

We seek to build relationships not only with the angel investor group, but also with venture capital firms, private equity firms, and even hedge funds. Our theory is that if we can bring as many sources of capital together as possible, it will increase the likelihood that your business plan gets the needed exposure to help in raising capital.

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