Article: June Campbell

The Small Business Library

March 17, 2000

Are You Looking For an Angel?
[ Business Funding  -  Raising Capital ]

When funding is difficult to arrange through a bank or venture capital firm, many owners of small look for an "angel."
No, we're not talking about wishful thinking or consulting with the spiritual world. Angels are real-life people who invest money in dynamic, young businesses. Usually successful business people themselves, they are capable of making good business decisions and of recognizing when a venture has good potential. Some angels invest because they enjoy the excitement and challenge of being on the ground floor of an exciting business venture. Others are astute and cautious investors whose primary motivation is to receive a good return on their investment. Angel financing is sometimes known as "informal venture capital."

Should you look for an angel if you want to raise capital? Consider the following:

  1. Venture capitalists are the more traditional source for capital funding. However, venture capitalists turn down the majority of applications that they receive. Since there are many more angels than there are venture capitalists, your chances of getting the financing may be better with an angel.

  2. Most people who arrange angel funding find angels who are living and operating businesses in their home community. Geographic proximity makes the deal more appealing to many angels, who may prefer to invest in their own community, or who may simply feel more secure knowing that you are situated nearby. Look for your angel in your networking organizations, your existing circle of contacts or by placing an ad in your local newspaper.

  3. The angel will have a rate of return and a security level in mind. These rates may vary wildly, but you will have to convince your would-be angel that investing in your business will be more rewarding than if he or she used the money for other purposes. In short, you will have to convince them that putting money in your business idea will be better for them in some way than if they put that money in the stock market or saved it for their retirement.

    Some angels may be looking for psychological as well as financial rewards. They may be motivated by the idea that they can invest in an exciting new concept; they may be interested in appearing to be the wise mentor; they may enjoy the feeling of power that their investment will give them and so on.
    Your job is to identify that motivation and address it.

  4. Since most angels are successful business people, they are able to offer guidance and coaching in your business operations. The degree of involvement will vary, but given that you are using their money, expect to find that your angel doesn't take a back seat. Some people find that their angel wants more Involvement and a stronger voice in the decision making than they prefer. Others complain that their angel is a demanding taskmaster who more closely resembles a devil.

  5. If your business is not doing well, the angel is likely to step in and take over. He or she has an interest in protecting the investment and probably will not hesitate to act if he or she thinks it is needed.

Since the angel market is unregulated, both you and the angel will want to exercise caution. If you choose to go this route, and there are pros and cons, the important thing is to try to understand in advance the role that your angel will want to play, and decide if this role is within your comfort level. If not, you will have to make a hard decision as to whether this is the right relationship for you.

June Campbell is a professional writer whose work has appeared in several international print and online publications. As the owner of her own business, Nightcats Multimedia Productions, she provides business writing services and online sales of business templates and guides from her web site. Her web site offers a number of resources to small businesses - including guides for proposal writing, business plan development and more. Visit June's Website to Claim Your FREE GIFT!