An entrepreneur seeking to raise capital
for his/her new business should be aware that there are people out there who are
looking to invest. Most commonly known as angel
investors, these people are investment professionals who have made it their
career to invest in startup companies for a portion of the profits or IPO. Many
entrepreneurs tend to shy away from angel investors because it means that ownership
of the company and profits made will be shared with others. If an entrepreneur experiences
difficulty in being unable to find suitable business capital from other
funding sources, then choosing angel investors may be the next viable option
to pursue.
Benefits of angel investors
There are many benefits in having angel investors
as part of a new business. The most important advantage is that they provide immediate
business capital. In addition, they do not require expensive monthly repayment terms
as most traditional lenders. Angel investors understand that a new business will
not make money right away; therefore, the
entrepreneur will not have to worry about paying exorbitant monthly fees
with interest. This is quite a different approach from traditional bankers who expect
payment almost immediately.
Another positive fact is that angel investors
are very business-savvy individuals who do not want to see their money go to waste.
They can bring a fair amount of expertise to the table in order to help and guide
the entrepreneur and the invested company towards success. When prospective business
owners choose angel investors to fund their startup, often times, they do not need
other sources of funding since
the angel capital amount will usually cover all startup costs.
Disadvantages of angel investors
Some people do not like the idea of working with
angel investors because it often means that they must share ownership of
the company with others. Sole proprietorship of a new business is something that
new entrepreneurs may desire; however, they must reconsider, especially if they
are interested in seeking angel capital. When
investing in a company, angel investors often expect a percentage of company
ownership, stock options, a board seat, and a large ROI. These demands are quite
reasonable for the angel investor since they are putting their own money at risk
when they invest.
An entrepreneur must also take the time out to find the right angel investor because
inappropriate selection may very well lead to problems. For example, an entrepreneur
may choose an angel investor who does not
have experience in the companyâs field of industry or one who is not actively involved
in regular company operations. These scenarios can mean trouble, especially if the
new company needs guidance during its crucial early stages of development. In addition,
an entrepreneur may choose an angel investor that is too controlling, which may
lead to resentment and possible company failure. Before approaching an
angel investor for funding, it is critical that prospective business owners
complete their share of due diligence, learn about angel investors and the companies
they have invested in, and understand their personalities.
Conclusion
Angel investors provide an excellent means for entrepreneurs who seek capital for
their startups. Not only do they bring immediate business capital to the invested
company but they also provide experience and expertise in making the new company
very profitable. For those who are not opposed to sharing ownership of a company
and agreeing to special terms, then angel investing
may be considered a good option in order to raise the required startup capital.
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