When a young company looks for investment capital, the sources closest to home present the most ideal opportunities. Potential investors include friends, neighbors, relatives of your employees, and the people that those people know. All of them are flattered by an offering to participate in something special.
Although relationships of a personal nature can attract business commitments, some special handling is required with investors who know where you live. Personal connections should not be taken for granted. Family and friends who provide commercial financing deserve treatment as business associates. Formal terms for providing capital are expected in a written agreement. Define what happens to the equity stake of your important initial angels when future rounds of financing are secured. Angel investors often receive liquidity preference over your shares. Provide the same consideration to your angels.
If you expect excitement about your business by the people who are personally close to you, show your own enthusiasm. You want them to feel compelled to advance investment capital. Demonstrate to them that you feel the same. Invest your own savings first before asking for money from those closely connected to you. Entrepreneurs who want to succeed—who are completely confident about success—raise cash to invest in their companies by moving to modest homes, selling expensive autos to drive cheap cars, and liquidating expensive collections.
Don’t look for angels until you have built something with your own resources. At least have your business incorporated, a working prototype and a history of meeting with prospective customers. Gather testimonials. Launch an online application with your website for obtaining feedback.
Focus on the optimal angel investor. That’s the individual who is the most social and maintains contact with other angels. Having an ally who is influential to a group is a potential champion to your cause. Once you earn the confidence of this key person, look for opportunities to network with the angel’s associates. Practice your brief pitch that can be delivered in a social setting where conversations are subject to interruption within a couple of minutes.
Learn what attracts your targeted angel. Is it a specific technological advantage or an underserved market? Find the angel investor with a hot button that your company perfectly pushes.
Seek investors who can contribute more than money to your business. If your cousin’s neighbor’s boss is a successful entrepreneur, seek that person not only for investment funds but also expertise. Offer a seat on the board of directors and have regular meetings.
Angels want to make a difference. People with money have plenty of investment opportunities. They care more about losing a spectacular chance to use their expertise than gaining on an investment. The right angel not only provides useful insight during initial operational phases. A respected investor who is accomplished in business helps attract institutional funding in the future.
Budding entrepreneurs face plenty of challenges. But a wise choice of early investor angel provides a distinctive advantage for achieving success.