Need money to fund or expand your small-business startup? Forget venture capital.
For 99 percent of today’s startups, VC money is a pipe dream. Angel investors are the better way to go. They are more plentiful and better organized than ever, and hooking up with them has never been easier (not easy, mind you, but easier than it once was).
Consider Mark Risher, who recently sought funding for his Internet-security firm Impermium. He found funding heaven at a new place called AngelList. “Within hours of posting we had dozens of qualified, top-shelf investors and by the end of the day we were 100 percent oversubscribed,” he said.
Angel investors are a key force supplying startup and early-stage capital to tens of thousands of promising young companies yearly. Once conducted largely behind the scenes, the angel-investment process has moved more into the open. Some angels act solo, but today’s angels are more and more likely to work through angel-investor groups that have proliferated nationwide.
Angel investors and venture capital firms are very different animals. Angels invest in first-stage startup and early-stage businesses. VCs tend to provide growth capital for businesses further along, and have little interest in firms that need less than multimillions.
Locating angel groups, learning how they work, what types of startups they are interested in, and finding out the exact process for how they can be approached, has become easier thanks to organizations such as AngelList as well as the Angel Capital Association and Angel Capital Education Foundation.
ACA is North America’s professional alliance of angel groups, bringing together more than 6,500 angel investors. ACEF is a nonprofit founded by the Kauffman Foundation, a premier organization that supports entrepreneurship. ACEF does not make investments, but provides information and links to support the process. The “Entrepreneurs” section will tell you:
• If your type of business is right for an angel-group investment.
• When to approach an angel group.
• What criteria angel groups use to select entrepreneurs to back.
• What process you can expect to apply for group funding.
• Whether you should expect to pay fees to participate.
The investment process has numerous steps, including an initial application, prescreening, screening, investment meeting, due diligence and, finally, a term-sheet offering if you make it all the way through. About one in three angel groups charges a fee to present your idea. •
Dan Kehrer can be reached at www.bizbest.com.
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