Angel Investors 101

Finding funding for business plans is a process that involves presenting your ideas to potential sources of funding, introducing your potential, and asking them to help you realize your dream. In return, however, your investors will likely hope to either take the reigns, make back their investments and then some, and also wash their hands clean in the event of a failure.

A quick search online can yield numerous websites that offer start-up investing help, ranging from venture capital investors to online commercial lenders. These commercial lending specialists are usually formed through pools of capital from institutions that are used for business they see as high-yielding. Angel investors, on the other hand, belong in an entirely different group because of what they can offer. These are private investors who use their own money and savings to fund your business endeavors.

Before you begin your search for the filthy rich and compassionate, however, remember that statistically, angel investors make up only a very small percentage (1%) of funding for start up businesses. It can also help to note that of all the businesses that are successful in receiving funding from angels, the majority tend to be companies with very high estimates of immediate ROI.

Examples of successful businesses that started with high-rolling angel investors are Subway, Alienware, and also Bodyshop. Apart from finding niche markets that (at the time) yielded lesser competition, these companies all focused on relying on generous funding as well as a frugal approach to opening up shop in the beginning.

Today, in order to attract an angel investor, your business should have an already established identity, as well as high level of technology based credentials in order to insure that you have done the legwork yourself. The reason for this is that angels tend to be non-industry affiliated financiers who expect a quick profit from a quick investment. Working with someone with high-yielding potential is in their best business interests, as sticking around and helping to develop your brand or your culture wasn’t in their plans.

In many cases, you will have to have invested quite a lot of your own money to at least prove you believe in your success. The general idea is that angels will only help if they are the last step needed to propel your business into the forefront, and not during the beginning, where they will need to invest as well as wait for your operations to take off. Angel groups are typically full of accredited investors, or individuals making at least $200,000 yearly, looking to capitalize on opportunities, so be prepared to treat these deals like trade-offs.

If you are looking to find a list of capable angel investors, then chances are that your doors need to already be open, with a good estimate of cash flow coming in and out of your offices already. Angels typically step in to either keep your doors open for a short period of time, or to open the doors to a business with booming potential. While not all angels investors are the same, finding out which ones are looking for a quick buck, and which ones are thinking about your potential seriously requires a little time and plenty of patience.

Many websites promise a piece of the pie by connecting you to their network of successful investors, but be wary of being lured into something you will later regret. First, never pay any money up front in order to be connected with anyone – any agencies and angel ‘brokers’ should know that the investment part is never guaranteed and that the price of a loan is never charged upfront. Remember to ask your potential partners what they want out of your business, and never give up ownership in exchange for funds.

David Liu is a writer and comedian based in San Diego, California.  He writes extensively for an online resources that provides expert advice on purchasing and outsourcing for small business owners and entrepreneurs on topics such as phone systems and business cash advances. You can find him at Everything Business.