Continuation from yesterday……(How To Raise Money From Angel Investors)

And what does being ready mean?

First, you should already have something built.  While having a finished product is your best bet, a prototype or a beta type of a situation might work as well. Keep the following in mind. Very few angel investors or venture capitalists will invest in an idea.  In fact, I have never seen it happen personally, although I have heard about it.

Second, have a detailed business plan written out. It is a must have to show potential investors. You must illustrate in a very clear fashion that you know what you are talking about, what the market forces are, financial, etc…. Simply put, without a detailed business plan most angle investors will not be capable of properly evaluating the legitimacy of your investment opportunity.

Again, the threshold here is very easy and straight forward. If you cannot put a legitimate business plan together, how are you supposed to run a business?  Chances are, you cannot.  Therefore, if you can’t put it together, you have no business approaching either angel investors or venture capitalists.  Do not waste their time as it is almost a certainty that you will not get anywhere.

Venture Capital

Everything that was mentioned above in regards to angel investors applies towards venture capitalists, but on a bigger scale. That means more expansive capital, higher threshold requirements and for the most part a bigger capital investment.

The keyword for venture capitalists is TRACTION.

If you are starting out with just an idea, at times it wouldn’t even be appropriate to approach venture capitalists.  You are not ready and they are not interested.  In fact, think of venture capital as growth capital. For the most part, venture capitalists are interested in growth concepts that are already getting customer traction.

Still, if you do decide to approach venture capitalists the best way to do so is through your network or their existing portfolio companies.  An introduction is always the best possible way, but it is not an option for many.  Try to avoid a shotgun approach here. Meaning, you would be much better served researching any given venture capitalist for some time and coming up with a unique proposition as to why they should listen to you.  This will guarantee a much better success rate as you unlikely to hear back from anyone if you attempt to contact them in mass. Weather it is through email, mail or in any other fashion.  Finally, finding venture capitalists should be relatively easy as multiple lists are available online.

Personally, I have mixed feelings about venture capitalists. They are wonderful and very smart people. Yet, they are under constant pressure from their own investors to hit that next home run or to earn a significant positive return.  As such, their interests are not necessarily aligned with yours.  It is their job to make as much money as possible and they will do whatever is necessary to get that done.  Sometimes that includes destroying companies they have invested in or replacing top management, including you.  Be aware of it, but don’t blame them. That’s just how the game is played at that level.

To Be Continued Tomorrow…….(Why Am I Seeing This On A Financial Website?)

Venture Capital Google

Continuation from yesterday…..(What About Crowd Funding)

Angel Investors:

If you are unable to raise capital from previous formats, angel investors should become your best friends.  Yet, it comes with a disadvantage.  As we move down this capital raising list, the complexity levels and costs associated with raising capital increase substantially. For instance, while in the majority of cases you would be able to have a brief conversation with your friends and family in order to raise capital (at reasonable costs), such an approach would not work with angel investors or venture capitalists.

Before we get any further, let’s define who angel investors are, how to find them and what they are looking for.

Who Are Angel Investors?

They are defined as affluent individuals who provide capital for business start ups, usually in exchange for convertible debt or ownership equity. They can be anyone, but in the majority of cases they are high net worth individuals who have $1 Million or more in liquid investable assets. Some of these individuals advertise themselves as Angel Investors while others do not.  Technically speaking, if you have a rich uncle with over $1 million in investable assets, he could be classified as an angel investor.

Where Do You Find Them?

There are four primary ways.

• Look for angel investor groups in your city. Angel investor groups or organizations should be popular hangouts for angel investors in your city. They tend to pull their resources together in order to look for startup companies that match their requirements. They often have meetings and set up presentations/pitches for entrepreneurs and startups alike. And while some of them make capital allocation decisions based on group vote, others do so on the individual basis.  Either way, there should be at least a few organizations in your city and you are highly encouraged you to look them up. Simply Google “angle investors in your city” to get started.
• Search Online: There are a number of websites out there that cater to bringing angel investors and entrepreneurs together.  com and angel.co  are good places to start, but there are many others.  These sites do their best to connect companies to capital, but it is not as easy as it sounds.  A substantial amount of work on your part is still required.
• Get A High Net Worth Individual List: There are many such lists out there, but I highly recommend going to Infousa.com and using their filters to get the best possible data.  Do a search for people in your area with a net worth of over $1 Million and then contact them on individual basis to see if they would be interested in investing in your venture. Make sure you are following all of the rules and regulations associated with contacting potential investors.
• Ask Around: Ask people within your circle of influence if someone A. Participates in angel investing directly and/or B. Knows someone who does. Ask for an introduction or a connection.

What Are Angel Investors Looking For?

While this might not be the case for all angel investors, many of them are interested in two things.  First, they would like to generate massive ROI while participating in exciting start ups.  Yet, for many it is much more than that.  Many angel investors are also interested in participating and mentoring entrepreneurs. Trying to re-live their glory days through the companies they are investing in. Whatever the case might be, most angel investors approach this in a very serious fashion. Meaning, do not approach angle investors unless and until you are ready.

To Be Continued Tomorrow…...(Why Am I Seeing This On A Financial Website?)

How To Raise Money From Angel Investors Google

Continuation from Friday…..(How To Borrow Money)

• SBA Loans: Too many requirements and an application process that might take a while to complete.  An unfortunate development since you need to start your business NOW and not 2 years from now.  However, it is a good option for many brick and mortar businesses and it is recommended that you look into this if no other options are available at the time.

• Bank Loans: Forget it if you have a startup.  Banks typically require a 3 year operating track record and audited financial statements before they would even consider lending you penny. It is an option for more established businesses seeking growth capital and not for entrepreneurs like you.

• Revenue Financing: Finally, if your business is already generating revenue, yet it is doing so on Net 30-60-90 or more payment terms it might make sense to finance your operations and cash flow through accounts receivable financing. Also known as factoring.  In essence, financial institutions fund your accounts receivables in exchange for interest. And while the rates are not very competitive, it is an option if everything else fails.

Crowd Funding

As described earlier in “Build a Crowdfunding Campaign”, crowd funding is the most recent phenomena that has proven to be a highly successful avenue for various entrepreneurs to raise money.

If you have skipped the earlier section, it works in the following fashion. Let’s assume that you have a great idea for a business, product or even a movie. What you would do is post the details of your project on sites like Kickstarter.com or Indiegogo.com in order to ask people for contributions or donations towards your cause. If people do like what you are trying to do they might contribute somewhere between $5 and $1,000. And if you get enough people to do that, you are talking about real money.

For instance, let’s for a second imagine that 10,000 people contributed an average of $25 towards your business idea. Well, that’s $250,000 you didn’t have before that can now go towards your business. And for most, that should be more than enough to get going.  At the same time, the donations are not really free. Most projects offer either a completed product or some sort of a thing or a perk in return for the monetary contribution.  And while it’s becoming increasingly difficult to post projects due to their oversupply, it is definitely an avenue worth pursuing.

Equity Crowd Funding:  Based on the Jobs Act of 2012.

Only a brief mention here as this particular point will be discussed in greater detail in the Angel Investor section below.  Plus, the water is still a little bit murky on this one as most of the laws governing this type of an equity investment are still being written by the SEC.  In simple terms, this law allows entrepreneurs to market and directly raise capital from High Net Worth individuals. As opposed to the environment prior this law, where entrepreneurs could NOT directly market or solicit investment into their enterprises.

To Be Continued Tomorrow……(Why Am I Seeing This On A Financial Website?)

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