Angel Funding

Angel Funding

Angel funding is the investment done by the angel investors also known as the private or informal investors, which are the affluent businessmen looking for earning good profits. Angel funding is done by the big investors looking for profitable investment beyond the stock market and the real estate market. There are over 4,000-6,000 angel investors in UK providing an average angel funding of 42,000 pounds per investment. Angel investors provide angel funding to those Small and Medium Enterprises which have already received the funds but need some extra financial support and either are already showing good growth or are showing good prospects. Angel funding is a very high risk investment where angel investors invest their own money in new companies which may go completely in loss.

There are many angel investors providing angel funding who have organized themselves into networks and organizations. Angel funding is provided by the angel investors in lieu of convertible debts or the ownership equity in the invested company. Angel investors providing angel funding look for those high growth companies which can provide atleast 10 times the returns on the investment in first five years through exit strategy which gives them the power of initial public offering or an acquisition.

Angel funding may be provided by the retired businessmen who make investment as a hobby and not just for receiving high returns. They may provide angel funding out of enthusiasm for the development of new technology, to help their peers or guiding and grooming the next generation of the entrepreneurs. Besides providing angel funding these retired entrepreneurs also provide their experience, knowledge, expertise, contacts and valuable advice to the invested company.

Angel investors who may be interested in providing angel funding to those businesses which have certain characteristics:

  • The prospective beneficiary of the angel funding has achieved good growth and expansion within a reasonable period.
  • Angel funding is available to those businesses which have high potential and in which the angels foresee high returns. There are fair chances of getting angel funding for the unexplored business areas which are untouched and are completely a fresh venture. The angel investors know that if the business takes off the returns on angel funding will be outstanding.
  • There are high chances of the entrepreneur getting the angel funding if the business is in the area of interest of the prospective angel investor.

The primary method to win over the angel investors and get them ready for angel funding is to make a consolidated business plan which clearly conveys your plans, goals, strategies and tentative return on investment.

Here are some tips to make successful business plan to get angel funding:

  • Clearly mention the growth incurred by the company in the recent times to impress the prospective angel investors and convince them to provide angel funding.
  • Highlight the achievements of the company and describe them in detail to convince the investors to provide angel funding.
  • Highlight the assets of your company that is the strong management team with connoisseurs of business providing their knowledge, experience and skills to grow the company. If the angel investor gets convinced that the management team has a great vision, they may provide angel funding.
  • Mention your strengths and capabilities to grow the company if angel funding is provided.
  • Mention the financial requirements, the market strategy, the market competition, the target industry, targeted consumers and marketing planning. If all these are in correct place there are fair chances of getting angel funding.
  • Mention what your capital requirements are and how angel funding can help take the company to a new pinnacle.
  • Always keep a 2-3 page executive summary ready as the angel investors may ask for it before deciding on providing the angel funding.
  • Explain a well defined exit strategy where the angel investors may exit the company through the sale or merger of the company at the end of the phase where they have to make investments and actively participate in the company.

Once the fool proof business plan is ready the next step is to present it to the prospective angel investor who may provide angel funding.

  • First the entrepreneur need to locate the angel investors interested in angel funding. The angel investors who may be interested in angel funding maintain very low profile and hence are hard to locate. The entrepreneur may get the useful information about the angel investors interested in angel funding from local chamber of commerce, local and regional economic development agencies, local business incubators, business schools, bank officials, business development centers and some of the websites.
  • After locating the prospective angel investor interested in angel funding, the entrepreneur must fix a meeting with the angel investor who may provide angel funding. There are other angel investors who may be interested in angel funding who ask for step by step application process from the enterprises seeking angel funding. The process follows as : 
  • 1. Get all the documents required to fill the application for the angel funding. The enterprise seeking angel funding may be required to submit the executive summary. The angel investors consider only ¼ of the applications submitted for angel funding.
  • 2. Next follows the prescreening course of the angel funding application where ¾ of the applications are rejected for reasons like incomplete applications, haphazard business proposal or did not comply with the business interest of the prospective angel investors interested in angel funding.
  • 3. If the business proposal is liked by the prospective angel investor providing angel funding, the entrepreneur is called for personal meeting to discuss the business plan, strategies, exit strategy and tentative return on investments. These types of meetings to provide angel funding are organize on monthly basis where question and answer round follows the description of the business plan.
  • 4. After the meeting the prospective angel investors interested in providing angel funding, analyze the business proposal, check the credibility of the entrepreneur seeking angel funding, their track record and get in touch with the provided references. This process takes about a month and at the end of this entire process only a few lucky entrepreneurs qualify to get angel funding.