Every Startup Needs an Angel
Dr. Colleen Morrison | Mar 11, 2009
You’ve been watching the markets like everyone else on Earth, and you know too well the direction they’ve been going. And that makes your search for a place to invest your hard-earned cash a bit disheartening, especially if you’re one of those investors who hopes to make money with his investments. Here’s a thought: become someone’s angel – an angel investor, that is, who invests in a start-up venture with a high potential for earnings.
Angel Who? Invest Where?
It works something like this: you attend an industry event (or maybe a cocktail party) where you encounter a brilliant and enthusiastic entrepreneur in the process of launching a new venture. It’s clear to you that the business is on track to succeed if the owner can scrape together enough capital to get the thing off the ground. The two of you might be made for each other. She’s looking for investors, and you’re looking for an investment opportunity.
Before you slam the door on this one, give it a bit more thought. It’s true, you want in, but you’re scared – you’re fairly certain you’ve never done this sort of thing before. It’s pretty simple, really. As an angel investor, that is, an individual with capital (money in hand), you agree to lend financial backing to a promising start-up business, preferably one in a high-growth industry with tremendous upward momentum. The angel (in this case, you) invests personal funds and gets a stake in the new company in return (usually bonds that must be repaid at a specified date in the future or ownership in the form of stock shares).
Angel Research
Naturally, you’ll do your homework before making the decision to become an angel investor. You want to be as certain as humanly possible that you’re putting your money in an enterprise that will make more money for you, so don’t strap on those angel wings until you have thoroughly reviewed the company’s potential for growth. Learn all you can about the skill and experience of the management team. Ask about everything, and don’t be shy about it; and when you have picked over every detail of the start-up’s files, learn more from outside sources.
As an angel investor, you have some flexibility to name additional terms for investing in start-up enterprises. At the very least, demand regular communication and updates on the status of business, and make sure you define “regular.” Maybe you want a seat on the board. You may be an angel, but that doesn’t mean you can’t negotiate terms.
If this is sounding good, but you’re pretty certain your modest nest egg won’t be attractive to a start-up business, consider forming an angel investor pool. That’s right, invite your friends and acquaintances to join you.
Filed Under: Almost Angel • Angel Investing Basics • Picking Winners
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