August 1, 2011
If you have a great idea for a new business but need some start-up capital to get it going, angel investors could be your saving grace. Even if you already have an established business, angels could be the golden key to expanding.
Most angels have more than just wealth to spread around. They are talented business people with great success to their own credit. They not only invest financially to help others become successful, but they invest their skills and expertise as well.
Angels know they are making risky investments, but they will never make a stupid investment. You have to know how to approach them and how to present yourself as a risky investment worth taking. That requires you to understand what they need to see in you before they will put their money and talents on the line.
1. Potential for high return on investment, or ROI.
If an angel doesn’t think it is possible to make all of their money back they will not invest. For most, even potential for a small profit is not enough. They are looking for businesses that can deliver huge returns on their investment. The risk is not worth anything less than a substantial return in the end.
The Center for Venture Research conducted a study that estimated angel investors earn an average return of 26% from all of their combined investments each year. This is what they are in the business for, but they also accept that as much as 1 out of every 3 investments will flop and earn them nothing in return.
2. Knowledge of the person they are investing in.
There is a reason angel investors often spread their money out among friends and relatives. This is a business about who they know because they feel more comfortable knowing the person they are handing the money over to. They believe in the character of the person just as much as the potential of the idea. Those who don’t have these direct connections often work network with those they do know to get to the angel investors through a personal connection.
3. The personal rewards or nurturing a business to success.
Most angels are business people themselves and they enjoy the process of nurturing a start-up to great success. Often they will use their own business connections from their personal pursuits to strengthen and grow the businesses they invest in.
They also use their own knowledge and past experience to help the business make decisions that lead to success. This is why most angels want to invest in businesses similar to their own past pursuits. They feel confident that their expertise and experience can bring the company to a point of profitability.
4. The excitement of the business game.
There are also some investors who just love the game of investing in a business and watching it build from nothing to something extraordinary. They get a thrill from watching businesses prosper and that keeps them investing in people and start-ups rather than something boring like the stock market.
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