Will an angel answer your prayers?
Wednesday, May 14, 2008/
Financially frustrated entrepreneurs may need to turn to other sources of funding, but the right approach is needed. DORON BEN-MEIR
By Doron Ben-Meir
How frustrating. Financial support for a new business never seems to come quickly enough, and you find yourself annoyed with everyone’s inability to see the obvious – your business idea is great!
I often come across financially frustrated entrepreneurs. And I then suggest the entrepreneur takes a more strategic approach to raising capital.
Think of it like this – raising money is no different to selling a new product. There’s market research, product specifications, product design, development, sales, marketing and production. All the same principles apply.
You are operating in a competitive environment, so you have to have a “product” strategy. How much money do you need? What characteristics would define your ideal investor? Are the dollars all you need… what more do you want?
That’s when you look at the funding options – banks, venture capitalists and angels.
Business angels are well worth considering in the early days of business development. Contrary to popular belief, they rarely have wings and almost never have halos!!
Angels are typically successful professionals or entrepreneurs who have made a dollar or two and are interested in investing relatively small sums, typically $20,000 to $200,000 (although some ultra-high net-worth angels may invest more), with hungry entrepreneurs operating in sectors of interest.
Angels can be found through personal networks and they also tend to form networking groups of their own. The right angel can make a very positive contribution to your business.
Here are a few basic tips to help generate a good outcome:
- An angel investor is a partner, not a bank manager. Their passion is getting involved in building new businesses so they are unlikely to be quiet and passive. If you just want to be left alone – mortgage your house!
- Think strategically about who would be best for your business. Since you’re selecting a partner, you want the angel to be able to offer you more than money – guidance, networks, industry contacts and so on; be clear about what their role will be.
- Make sure you set up a shareholders’ agreement so that governance, decision making, accountability and the protocols for further funding are clear upfront.
Doron Ben-Meir has been an active venture capital manager for the last eight years. He founded Prescient Venture Capital and prior to that was a consulting investment director of Momentum Funds Management. He was a serial entrepreneur over a 12 year period, co-founding five new technology based businesses.
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