Angel Investing: A financing vehicle for high growth start ups

Angel investors are individuals who invest in entrepreneurial businesses at a very early stage of their startup and growth. The startup and growth of an entrepreneurial enterprise typically is broken down into five stages: the Concept (or Seed) Stage when the business is being organized by the entrepreneur and financed from personal funds and Stages I through IV which begins with the sale of the product and ends at Stage IV with a high growth operation that is attractive to outside buyers.

The Angel Investor typically participates during the Seed Stage or Stage I and will provide funding to assist the business in exchange for some portion of ownership. For taking on this risk of a new business the Angel will expect high returns from the investment which they seek to receive within a few years at a time when the company is taken public, venture capitalists may be brought on board or when the company is possibly acquired. The owners may even choose to buy back the ownership they gave up, but at a higher price. As such whatever enterprise you have must have the potential to achieve very high sales growth in a relatively short period of time.

The Angels participate for a very defined period and most always with the intent of cashing out and moving on. They want to know going in how the business owner anticipates having them exit and this should be thought out in advance of approaching an angel for funding.

Many Angels seek to be more than a passive investor and will serve as an advisor to the business owner and they may be able to bring in other resources such as industry experience, contacts and even possible employees who may be needed. The business owner should research and explore the background of the Angel or Angels investing in their business to establish how involved the Angel will be. Defining the level of involvement is extremely important to insure that no friction emerges between ownership and the investor. Checking the experience and references of other owners who have worked with the Angel is very important., since Angels are individuals with money and varying experiences, styles and values, as a result the angel relationship may vary significantly for different owners.

In preparation for angel investing the entrepreneur needs to establish some key fundamentals about the venture in advance of an angel meeting. Have the business plan well written, identify the management team that is critical to success, protect any intellectual property associated with the core business, and be prepared to pitch the business to many individuals and groups associated with the angel and venture capital communities.

Locating an angel investor will take time and networking within the more established venture capital community is a good start. The VC community has many established monthly forums and often run regional events during various times of the year. Within New Jersey there are two well known angel groups, www.jumpstartnj.com and www.NJAngels.net.

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