Angel Investors: Funding Your Small Business

Angel investors are individuals who provide funding for a business that needs capital. Angels are often well-off financially and looking for ways to diversify their holdings by investing in one or more small businesses. Angel investors want to be kept informed on a regular basis about how you are managing your business. You need to be comfortable with how the angel’s repayment will be made, so make sure to be realistic in your growth expectations before you decide to use an angel for funding.

Finding an Angel Investor

The easiest way to find an angel investor is by contacting people you know. Friends, family members or business acquaintances are a good place to start. You can also check the Internet for angel investors, narrowing your search by looking only for those who invest in your type of business.

Once you find an angel, you will need to prepare a proposal to give to her so she understands how you intend to use her funding. Your proposal should be as detailed as possible in order for the angel to be comfortable investing her money with you. Some of the information you can include is as follows:

  • how you will spend the angel’s funds;
  • length of time you require for repayment;
  • description of your business and your strategy;
  • marketing plan;
  • estimated sales projections;
  • organizational overview; and
  • Financial information, such as profit and loss statements and a balance sheet.

The more information you provide for the angel, the better your chance to secure funding.

What to Expect from an Angel Investor

If the angel decides to fund your business, finalize the terms of repayment and the expectations the angel has for the return on her investment. You may want an attorney to draw up the final contract between you and the angel investor. Make sure to find out the fee the attorney charges for his services before you have him prepare the documents.

Some angels want to be involved in the decisions you make regarding the way your business operates. If this is the case with your angel, have her give you a written statement listing her requirements. This can work to your benefit if the angel has experience in your type of business. She may also have contacts in your area, which could help to increase sales.

What an Angel Investor Expects From You

To protect her investment, an angel may want to have a part-ownership in your business until her funds have been repaid in full. If your angel requires this, find out the percentage she wants to own. If that is agreeable, make certain the angel knows that once you have repaid the loan, you will take full ownership of your business, unless you think the need may arise for more funding by the angel.

Angel investors also want to be kept informed of how their investments are performing. Find out if your angel requires weekly or monthly updates so you will know how often to prepare her reports.