Funding offers one possibility to gain a good income, achieve financial independence.
A person directing certain funds for his own or someone else’s business development, either explicitly or through purchasing certain objects to generate income (real estate, shares, mutual funds units, etc.) is an ordinary depositor. However, this is only one definition because there is another characteristic — they invest money for a prolonged-term (usually this is defined as a year).
Individuals, who are angel investors, dedicate their money to startup stakes or convertible debt. Whichever scheme is offered, they are interested in making a profit in any case. Meanwhile, assuming the company’s failure risk, one understands that contribution may not come back at all or significantly less than originally put in capital.
The process is somewhat similar to borrowing — in both cases, funds are invested for a certain period with one purpose, but the loan anyway must be repaid along with percentages. Investment income is returned only when the deal starts to bring expected profit. Only after the project pays off, the investor receives his contribution back. But angel investors’ earning margin is always higher than lenders’, so it is more profitable. They are entitled to modify, monitor implementation progress.
Endowments are sometimes confused with capital investments, which are not returned, made in large amounts in capital firm stock, such as facilities, machinery, and investments are possible to put into anything in any volume.
How to Find Suitable Angel Investors?
There is an assumption that having a good business idea, certain proof-of-concept, and financiers themselves will discover you. It may be true! But still, any newcomer should visit places where they congregate by offering pitches. Several tips, helping with searching:
- Before seeking angel investors, it is necessary to prepare. Start by roughly determining the potential performer’s profile, expertise area, their professional interests.
- Google’s shareholders’ lists, start checking who might match.
- Start highlighting, researching everything there is about them on the internet, ask others.
- Call, write, meet, interest the representative with knowledge of his professional activities, your case intersection with his interests.
Why are these Specialists Important?
Such funding providers are willing to commit their capital in difficult trade time to further development, help commerce outgrow the “valley of death” — period when the business exceeds initial capabilities but has not yet become economically attractive to motivated fund suppliers. The peculiarity is that they have a high social motivation level, personal interest in proposals.
In addition to monetary resources, angel investors can also contribute to others. For example, consulting, mentoring, opening access to additional assets, etc.
Longevity is one of the activity foundations. Promising drafts require long-term effort, willingness to increase the amount. The expected payback period is three to seven years.
The preparedness to take risks constitutes a great advantage because banks may not grant loans, considering you unreliable for their money. With such an entrepreneur, this cannot happen. Engaging angel investors has many benefits:
- Getting equity in early venture stages.
- They are not embedded in property, which leaves more power to authors.
- Depositor credibility permits firm promotion.
- Their participation in non-standard work offers more freedom in ingenuity, individuality.
- In addition to direct financing, specialists grant credit warranties to their clients.
- It is cheaper to attract such mentors than banking institutions.
- More flexible decision-making than venture capitalists. Backers have their own criteria, wider horizons (“patient monetary”), shorter execution, lower return rate.
Difficulties in Searching for a Contributor
If we follow startups’ fate only from news, TV series, their success stories look pretty incredible. From the garage to billionaires, with angel investors becoming an important founders’ success part. But is everything really that easy?
Having a decent idea does not guarantee revenue. It must be worked out, calculated, with a prepared business plan, prescribed all the key performance indicators necessary to goal achievement — only then start to “sell” it to a specialist.
Entrepreneurial culture is centuries-old experience, market laws understanding, with the proper infrastructure (educational institutions teaching how to develop business plans, consulting organizations helping those who had no time to receive special education, dedicated platforms where beginners exchange initiatives). Being able to elaborate, sell your message well — one of the main cornerstones here.
There is often a global effort misunderstanding expended to evaluate, argue the idea prospectively, sell it, but most importantly, to build an impact product. It is just not well-developed enough. These are not peopled who are coming from the formula “I strive to produce nice, but I do not know how; give me money, we will work out together,” but those who have already figured it out in many respects but missed something very crucial.
Some variants with choosing positions to uncover angel investors:
- Designate proposed in-demand concern models, but there is high field competition with already established leaders. Then the concept has good entry prospects, but endeavor volume is potentially low, which discourages financiers.
- Another alternative — opting a sector with almost no competition, giving possibilities to be the first in your niche — but without demand at all.
What does an Ideal Corporation Look Like for Financing?
Anyhow, in venture investments, the defining notion is risk-return ratios; no angel investors enter trading with putting funds only into ideal project purposes.
But if we imagine — this is a project with high competencies, team drive, with the first significant clients, DNA for rapid growth, scaling, including funding expense. At best, associations have unique products that take a leading position in the industry.
To achieve the desired goal, you should prove that you will generate income for yourself, contributors because that is actually the essence.
Engaging foreign angel investors become quite difficult because they are more demanding to propose, refusing completely if there are any risks. Nevertheless, if you manage to convince them of your case’s worthiness, they may invest several times more money than you expected.
Some Statistics Facts
In 2019, more than 90% of European investments came from angel investors’ debts.
Globally, investment firms have nearly $1.5 trillion in reallocated capital.
The COVID-19 crisis had an impact, reducing the global value of deals by 12 percent. Their number is down 30%.
A sub-sector that saw tremendous growth in all industries during the pandemic is digitalization. The healthcare segment, caught in the spotlight, rarely experiences a decline in demand. According to studies, the median investment volume is about 30,000 euros now.
According to the “first in-depth report” in America, most contributors put finances through traditional angel networks. Here, the average amount invested is $35,255.