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The following article is from a series of small business articles, videos and tips about raising venture capital using business angels …

For a new business, raising startup capital can feel like a catch-22. It is typically necessary for the enterprise to be showing a profit before venture capitalists or banks are willing to provide funding. Personal savings, credit cards, and financial assistance from friends will provide some funds, but often a discrepancy remains. New business owners may question how they can possibly bridge the gap.

Enter the business angel. An angel is a private investor, generally a successful current or former business owner. Angels have been a valuable source of new business financing for many years. Angels often provide much more than just startup capital. Their experience, expertise and industry associations can prove quite valuable to the success of your business. They want you to succeed and will work hard to help you do so.

For all their positive attributes, angel investors should not be seen as smiling benefactors, showering money and advice with no thought of their own needs. Rather, they are astute investors who expect a significant return on their investment.

The dot com boom and later bust of the early 1990s affected how business is conducted in a number of ways. Many angel investors were burned, losing sizeable sums of cash. Fallout from that experience has caused angels to be more careful in their investments. No longer content to hear a vague pitch read from a piece of paper, today’s angel investors generally want to see a business plan. They also want a specific exit strategy, detailing how and when they will receive their money.

Finding an angel used to be mostly a matter of luck, as they preferred doing business quietly with friends or referrals. They did not advertise their services. This is still the way that most angel investors choose to do business. However, in recent years angel groups have begun to spring up. It is now estimated that these angel groups handle approximately 15% - 20% of all angel work.

Sometimes you are approached by a potential angel investor. This happens only in rare circumstances, usually when the angel is a friend of a friend. This is often an easier “sell,” as the angel’s curiosity has already been piqued.

Most of the time, you will have to approach the angel directly. The angel groups generally have a series of specific steps that new submissions must follow. Most often, you will query the angel with a copy of the Executive Summary from your business plan. If your query is accepted, you may be immediately invited to make a presentation, or there may be one or more screening steps.

In either case, if you make it through screening, you will eventually have to make a sales pitch in person. While banks and business lending institutions are strictly interested in the numbers, angels usually invest in people rather than numbers and projections. This does not, however, mean that you can let the numbers fall aside. A well-written, professional, and, most importantly, accurate business plan will be the basis of your pitch. Angels are interested in maximizing their roi (return on investment). However, you should also expect to spend some time promoting yourself, selling the angels on not only your new business concept, but on you as the best possible person to run it.

Angels can be the most important source of finding capital to start your new business. Often, angel investors have been in your shoes, having started off their own businesses with the same challenges, and can understand the problems you might be facing. That, in itself, is probably your biggest advantage to convincing angels that they should invest in your business. Sell your products and services with a solid business plan, but promote yourself as well, using both financial figures and personality to secure the funds and investment partnership.

For more resources on new business funding sources, go here: Raising Venture Capital

Tags: Business & Management //