Money to Start a Business –
By K. MacKillop
One of the biggest stumbling blocks for starting a business is finding the money to finance the launch. If you do not have the cash to self-fund, do not have the credit score to secure a bank loan, and do not want to give up a significant portion of ownership to standard investors, angel investing might be the answer.
Angel investors are typically high net worth individuals who invest in entrepreneurial companies at the earliest stages. These investors are more willing to invest during the development stages than venture capitalists, and are usually willing to take only a 5% to 20% stake in the venture – far less than the typical 51% plus demanded by VCs. Angels investors are looking for a good return on their money, but don’t necessarily expect to turn $50k into millions overnight.
Most experienced angel investors have specific interests as far as the types of businesses they are willing to invest with. Many are partial to hi-tech startups, and healthcare innovations are also popular. But there are angel investors for just about any field, any product, as long as the idea and the entrepreneur have a shot at success.
If your startup idea requires less than 10k to launch, you don’t need an angel, you just need to find a way to fund it yourself. If you need hundreds of thousands or more to launch, you will eventually need to find a venture capitalist and give up the bulk of ownership, but an angel investor can help you finance the planning and early stages of the venture. If you are starting a business with the intention of just making a living, you need a loan, not an angel investor. But if you have a great idea with significant profit potential, are willing to risk your own assets but need an extra influx of cash to get going, angel investors might well be the way to go.
Finding potential angel investors is part hard work, part luck. There are some formal matchmaking resources, like the AngelList at VentureHacks.com, but most angel-entrepreneur connections are made through basic (but aggressive) networking. You may have a family member, friend, or colleague with cash they would be willing to invest. As you build your startup’s contact database, you will likely meet several potential angel investors along the way. The only way to gauge the interest of others is to talk up your business idea.
Your best bet is to step up your networking and talk to everyone you meet about your startup. Pay attention to those who show a particular interest and follow up with them. Develop a formal offer before you talk about a deal – know how much you need, what you need it for, and what you are willing to give up in return. The more money you need, the more you will have to trade (usually as equity in the company), so carefully plan every detail of your venture before you start the conversation about investment.
About the Author-K. MacKillop, a serial entrepreneur, is founder of LaunchX and authors a small business startup blog. The LaunchX System is designed to help entrepreneurs start a business based on their own idea. It includes step-by-step business startup instructions, key software, business tools, and more — a complete business kit. Visit LaunchX.com to learn more about this revolutionary way to become an entrepreneur.
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