Determining if You Need Angel Investment or Venture Capital

Getting the needed funding for a business is really challenging presently with this recession. Businesses need to look at alternative forms of finance nowadays to get their businesses and ventures funded. In this article I discuss some of these alternative forms of business finance to include angel investors, angel investor networks and venture capital networks. I also discuss how to determine whether you Angel Investment or Venture Capital for your business funding requirements.

Angel Investment

  • Informal, yet sophisticated investors, who specialize in early, seed investing. Be sure to have a very well prepared Business Plan that contains a solid Executive Summary, Marketing Plan and Strategic Plan. Have excellent financial projections which you back up with realistic assumptions about your market.
  • Angel investors are really a great way to fund your company in the early stages. Angels usually precede Venture Capital, paving the way for later round venture funding.
  • Angel funding is usually much quicker to obtain than venture capital, finding funding often in a couple months.
  • ROI expectation often less than VC; 20% annual compounded ROI is a good starting point for Angel Investment.
  • Deal can be structured any way the entrepreneur and the angel want to set it up; very flexible.
    • Combination of Equity & Debt is common.

  • Angels can be located with local Newspaper ads; in VC Clubs, breakfast clubs or networking events.

    • Can find angles through attorneys, accountants, consultants, financial planners, brokers, etc.
    • Networking is an excellent way to find angels.

  • Angel or Venture Capital?  Here is some direction in determining whether your finance needs require Venture Capital Investment or an Angel Investor:

    • Amount of money being raised for the current round:  Less than $1M should be Angel, unless you find a VC Fund that funds seed rounds and/ or you have a pre-existing relationship with a particular VC (and there’s a strong fit).
    • Determine the total amount of money that needs to be raised over the life span of your Company:  If you can get to good, positive cash flow for less than $3M, angels will probably be best.
    • Type of Company:  VC looks for enormous investment opportunity, returns and economies of scale, verses linear scale companies.  Angels are less aggressive and happy with smaller companies and smaller investments.
    • Experience:  First-time entrepreneurs without much of a track record will find it easier to attract Angel money.
    • Your Network:  VC ties often come through personal and professional networks.  Develop strong ties prior to approaching a VC Firm.  Angels are great on referrals but not necessary.
    • Hunt for your Lead Investor:  Typically have 3 rounds of private finance with rounds 2 and 3 following a strong, successful lead investment.  Be picky about finding the original, lead Angel.

Online Investor Networks and Online Lending

  • Venture Capital Network is the original and probably the best. The Go Big Network is another good one.
  • These networks pool investor’s monies and venture opportunities.
  • Beware of proprietary protections and privacy concerns.
  • Consider hiring experienced  Turnaround Specialist to make sure you have a really solid Business Plan, Loan Package and Investment Overview in place.
  • Be careful not to shop your deal excessively, as that will diminish your future success on subsequent finance rounds (private equity is a small world and they want fresh deals).
  • Can be a good stepping stone to VC Funding.
  • Often offer helpful resources, online chat rooms and professional relationship introductions.
  • Borrowing Online:  The web has a lot of alternative small business finance options.  One is On Deck Capital:  they look more at your Company’s Cash Flow than your Credit Score and Tax Returns.  They collect small daily debits alternatively of monthly payments.

About The Writer – Frank Goley, Business Consultant

Frank Goley works for small and medium size companies in the capacity as an experienced business consultant, business turnaround consultant, business plan expert, business plan writer, business coach, small business consultant, business planner, marketing consultant, online marketing consultant, seo consultant, and business plan consultant for ABC Business Consulting. Frank is considered an expert in writing, developing and implementing business plans, business turnaround plans, funding business plans, marketing plans, strategic plans and web marketing plans. Frank offers comprehensive business consulting, business coaching, business turnaround consulting, along with web seo, web development and web marketing consulting, to small and medium size companies. Frank is the author of a business plan book, The Comprehensive Business Plan Workbook – A Step by Step Guide to Effective Business Planning, and he has over 130 published articles and e-books on business success strategies. He also writes the Business Success Strategies Blog and publishes the Business Success Newsletter.

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