You have the idea, the plan, and the right people to help build your startup – but you don’t have the money to actually build it. How do you fund that business dream into reality? If you’re a business owner needing alternative ways to raise capital, then look no further! In this entry, we’ll talk about angel funding and how you can acquire it.
Every entrepreneur inevitably goes through the challenge of raising capital to get their business started. However, when you’re new and still making a name for yourself, applying for a business loan is incredibly difficult. This is where the angel funding comes into play.
What is Angel Funding?
Angel funding is revenue-based financing that’s paid back in the funded company’s royalty or profit. Angel investors are people who are looking to invest their money or equity in start-ups. They usually provide private equity or second-round funding to help kickstart small businesses.
Compared to other types of capital funding, angel funding offers much more favorable terms since angel investors are investing in the business owner and not the viability of the business.
In fact, angel investors are called “angels” because their help not only extends financially but also provides management expertise to the company. Their goal is to help startups get their feet wet. Unlike venture capitalists, which are focused on acquiring profit as soon as possible, angel investors simply believe in a business idea.
Who are Angel Investors?
Now that we know how angel funding works, let’s discuss how to determine who is considered an angel investor.
Angel investors aren’t exactly who you think they are. They are deemed as “informal investors”. They can be a middle-class citizen with a pool of money looking to invest or they can be prominent individuals who are running their own business empire.
In order for an individual to be considered as an angel investor, he or she has to possess a minimum net worth of $1 million and at least $200,000 annual income. These types of investors don’t have to be accredited, some angels are part of an angel network while some finance on their own.
Pros and Cons of Angel Funding
So, is angel funding for you? Capital investment is a risky thing, and you have to weigh all the factors. Here are some things to consider if you’re planning to use it as an alternative for raising capital.
Advantages of Angel Funding
1. Higher Success Rate – There’s a good possibility that with the right guidance, and of course, the right amount of funding, your startup will succeed in launching. Some of the biggest brands today such as Pinterest, Facebook, and Google, were angel-funded.
2. Faster Growth – You can skip the hassle that comes with bank loans and venture capital. Because of its straightforward setup, angel funding will help you take the initial steps in launching your startup.
3. Network and Management Guidance – Apart from funding, angel investors also share knowledge at critical stages of your startup. Since most angel investors are business owners themselves, you have more opportunities to connect with a bigger network.
Disadvantages of Angel Funding
1. Shared Ownership – In exchange for funding, you let go of complete control as part owner. As a stakeholder of your business, your angel investor will have a say in the major decisions and will receive a portion of the profits.
2. Less Structural Support – Unlike other regulated ways of funding such as bank loans and venture capital, angel funding has an informal setup. Dealing conflicts will have to be resolved between you and your investors.
3. Startup Competition – It’s not easy to find a suitable angel investor. As a startup owner, you have to find someone who believes in your idea and is willing to help you bring it to life.
How to get funded?
Finding angel investors won’t be easy, and it certainly won’t be a breeze to pitch to them. However, if you want your business to succeed, you’ll have to put in the work. If you want to try out angel funding for your business, here are some things you can do:
Listen to the Startup Hustle podcast – Episode 207 Alternative Funding
1. Send out your business proposal – Although most angel investors prefer to remain anonymous, you can still find them online. Research angel investor directories online and contact those who may be interested in your idea. If you can score a meeting, deliver a memorable presentation.
2. Attend startup events – There are several startup events in big cities held all year round. Some of the most popular ones are the ACA Summit, Startup Grind, and VC Pitchfest. Look up the events near you and prepare an impressive proposal to present.
3. Contact angel funding groups – If you can’t personally find an angel investor for your business then you can contact an angel network that will connect you to them. There are accredited investor groups that can provide a platform that lets you connect with angel investors.
Start your Startup
Raising capital is always a hurdle to jump over for all entrepreneurs. As a startup, you can’t allow funding to stop you from achieving your business dreams.
The first step is to establish your long-term goals and create a business plan to manage your capital resources. You also need to prepare an attractive business proposal if you want someone to invest in your idea. A promising pitch will convince prospective investors to support you.
Out of all the alternative funding, angel funding is the easiest to acquire. However, this doesn’t mean you’ll have an easy road ahead. You still need guidance to sustain the momentum of your business growth. You need experts who will not only help you get started but will also see you through the entire process of running a company.
If you want to grow your business, talk to us! Full Scale founders, Matt DeCoursey and Matt Watson are angel investors themselves who consistently invest in startups, sharing financial support and expertise.
Full Scale is an offshore software development company that helps small businesses succeed. We offer the expertise you need to scale up your startup!