Starting a new business typically requires some capital. The amount can vary widely depending on the type of business. For example, an accountant looking to start a business helping others with their taxes may not need much money to get started as a restaurant. Restaurant startup costs are much higher because you first need a location, equipment, licenses, and staff.
As an aspiring entrepreneur, if you don’t already have the personal finances to start the business of your dreams, there are other ways to fund your business. One of these options is finding one or more angel investors.
What is an angel investor?
An angel investor is an individual who provides capital for startups, often in exchange for a percentage of the company’s ownership equity. They differ from venture capitalists, who typically manage pools of capital from a range of people. Angel investors may provide one-time funding to help the business get started, or they may commit to more ongoing support. Angel investors are sometimes referred to as private investors, seed investors, or angel funders.
How do I find angel investors?
Often, angel investors come from the business founder’s network of family and friends or their professional network. This is because angel investing can be risky; if the business fails, the angel investor may lose their whole investment.
However, most people may not have access in their immediate circle to wealthy individuals who are willing to invest in their business. Luckily, there are increasing ways to connect with potential angel investors for your business.
Platforms like Canadian Investment Network and Golden Triangle Angel Network (GTAN) are available, where you can sign up and create a pitch for investors across the country. This provides entrepreneurs access to a much wider range of potential angel investors who may be a good fit for their business. Other platforms include:
Who can be an angel investor?
Some of these platforms, such as the Canadian Investment Network, also function as crowdfunding sites that allow many individuals to invest smaller sums of money in projects they believe will be successful. For example, if you require $250,000 to start your business, you can create a pitch and set your minimum per investor to $10,000. If you can get 25 investors at this lower amount, you’ll be able to access the capital you require, and each individual investor faces a smaller risk.
This opens up angel investing to a much wider range of people. Someone who is not particularly wealthy but finds a company they believe will do well and wishes to invest $10,000 in it can do so. Traditionally angel investors have been high net worth individuals looking to invest a small portion of their portfolio in businesses that are in their early stages, hoping to yield a high return if the business is successful.
Steps to finding an angel investor
Finding an angel investor can be very appealing for entrepreneurs because it enables them to avoid other types of lending that are associated with high-interest rates, such as some loans from financial institutions.
In addition to funding, the right angel investor may also provide valuable contacts and business insights, making them more valuable than a simple bank loan or line of credit.
If you think finding an angel investor may be the right choice for your business, here are six things to consider as you prepare to look for one:
1. Make sure your company fits the profile
Angel investors typically look for startups that have the potential to give them a very large rate of return, as much as 5 or 10 times their original investment. Most companies don’t have the potential for that kind of growth, so they’re not good candidates for getting financing from angel investors. You should be able to demonstrate aggressive growth, and it can even be helpful to have an exit strategy for how and when you will sell the business in place. That can be the moment where the investor sees the greatest return on their investment. If your business doesn’t meet these criteria, there are still lots of great ways to access funding, such as applying for business grants.
2. Get your business ready
Professional angel investors want to see a proven track record that you and your team can deliver on your big ideas. You should be past the ideation stage, and your business should be registered or incorporated and ready to generate revenue if it hasn’t already. Your business plan and pitch should clearly state your forecasted revenue and plan to hit those numbers.
3. Seek out investors
In addition to the angel websites listed above, another excellent way to get connected with investors is through highly regarded business accelerators. Programs like the MaRS Business Acceleration Program provide startups who qualify for this program with access to investors.
4. Start building relationships
Get connected with local groups relevant to your industry where you might be able to meet investors. Potential investors are more likely to make deals with entrepreneurs they already know and trust, so developing a wide network is a great business practice.
5. Make sure there’s a good fit
Since the typical angel investment is in exchange for equity ownership in your company, business owners and angel investors should understand that they will be business associates in some capacity for a long time. You should find out what other startups they’ve invested in, why they’re interested in your industry, and any other questions that can help you clarify whether they’re a suitable match for you.
6. Be honest and realistic
Don’t try to oversell your business. Experienced investors will see through this, and it’s better to show that you have a strong realistic grasp of your business’ potential.
While accessing funds through an angel investor may not be the right fit for every new business, it’s a good option to consider if you’re in a high-growth industry and can demonstrate why your business is likely to be a success.
Ready to start your business? Ownr has helped over 40,000+ entrepreneurs hit the ground running quickly—and affordably. If you have questions about how to register or incorporate your business, email us at email@example.com.