YOU SPOKE! One of the clearest survey results that came was an interest in entrepreneurship. While I don’t believe one can teach another, “How to be an Entrepreneur,” I can share the interviews I have collected over the past few years and the information I use to refine my own approach. To that end, let’s start with a conversation about Angel Investing.
Angel Investors are the bridge between funding from your friends and family and the Venture Capital investors. Some Angel Investors will offer money for an equity stake while others will offer a loan that usually requires a smaller equity stake ultimately. For example, one deal I am considering right now (casual terms):
Choice A: I relinquish 20% of the equity for a 30% infusion, provide a preferred annual return of 10% and payback the original investment in 3 years. The 20% equity remains in the hands of the Angel Investors.
Choice B: The Angels receive 51% of the current equity today for an infusion of 30%, receive a 10% preferred annual return and principal payback over 3 years. As the principal is repaid, the equity stakes are reconfigured. Once all principal is repaid, the Angel Investors retain a 5% interest in the company with no preferred return – dividends only if we pay them.
That second one looks a little crazy, but this is an acquisition so the angels will be providing a guarantee on the bank note that covers the other 70% of the purchase price. Since the current owner is willing to finance the purchase and the company is very cash flow positive, I will probably do a multi-step Management Buyout instead. If you have other thoughts, please do share!
The point at which you consider seeking Angel Investors is when you are very serious about the growth of your company, you have studied thoroughly the capital needed to grow your company and you have exhausted your friends and family. For most, this is about the time you need $250,000 or more. It is also after you have developed the beta product/service to the point that you can show some kind of result.
If all you have is an idea, PLEASE, do not start pitching – save your energy, but do start meeting potential investors: angels and VCs. Get some proof of concept before you do any pitches. I prefer to see a customer list – people who have purchased or pre-purchased already. At the very least, a list of people willing to commit to a purchase when the product is done. If you can do that, you can sail through funding rounds.
Then again, if you are a serious Entrepreneur, you know that your number 1 task is to sell your product or service. Don’t wait to have sales staff or a sales force. Get out there and SELL!
Want a good, quick read from a serious Angel Investor? How to be an Entrepreneur – Angel Investors (this link takes you to another site). Who knew Twitter could be so useful! You can follow me on twitter: Miss Mentor .