Is there a small business that hasn’t needed more capital at some stage of development? And is there a small business owner who hasn’t thought of an angel investor as an ideal source of the capital he or she needs? But finding an angel investor isn’t like finding a clam on the beach; the search is more similar to finding the pearl. Here are some tips for finding an angel investor.
1. Know who you’re looking for.
Your chances of connecting with the angel investor you need will be much better if you keep this profile of the “typical” angel investor in mind. According to Ralph Kroman of WeirFoulds LLP, the typical angel investor:
- has an income that exceeds $100,000
- is 40 to 60 years old
- has a net worth in excess of $1,000,000
- has previous successful entrepreneurial experience
- expects to hold on the investment for up to five to seven years (although some angels wish to "cash out" after only a few years)
- enjoys advising the entrepreneur and likes to be part of the action
- invests up to $150,000 but may participate in a syndicate of other angel investors bringing the total investment to multiples of individual investments
- refers deals to other private investors even if the angel has chosen not to invest
- likes to invest in an industry with which the angel is familiar
- sources deals through referrals.
Angels look for companies with growth and export potential says Allan Riding, an expert on angel investing and professor at Carleton University. They understand that it may take several years before their investment will pay off – although they also expect to be well compensated for their risk.
2. Look close to home.
Because so many angel investors like to play an active role in the business they invest in, they prefer to invest in businesses that are close to home. "An angel wants to be nearby so they can drive over to talk to the principals," says Jim Orgill, managing director of advanced technologies for the Business Development Bank of Canada.
3. Network, network, network.
In most cases, you need to be referred to an angel investor. They’re not hanging out on the street waiting to talk to whoever comes by. So to find an angel investor you need to get to know the right person (the one who can refer you to the angel investor you’re looking for), which means immersing yourself in your local business and social community.
Focus on business owners – as these are the people who might be or become angel investors themselves or know an angel investor. Join business and trade organizations and regularly attend the meetings. Joining civic and community organizations are also great for networking. Attend trade fairs and events. Get your face and your name out there and meet as many people as possible.
4. Realize that many angels don’t fly solo.
While there are some angel investors who invest entirely on their own, many operate as part of an informal network or syndicate where they can pool their resources and share the risks.
Check with the Community Futures Office or Economic Development Centre where you live; there may be an active group of angel investors in your community.
5. Use the connection services available on the Internet.
You may be able to hook up with an angel investor through one of the web sites that provides entrepreneur and angel investor matching. If nothing else, you can at least get your business proposal before a wider audience. Here are three to try:
Capital Connexion - This network of local databases contains business projects and venture capital sources. Registration of business projects and private venture capital investors is free, but must be validated by a local economic development organization that has been accredited.
Planet Dealflow Canada - A service to connect entrepreneurs with angel investors. Posting your confidential proposal is free; If their matching service finds an investor who desires to pursue your opportunity further, you pay a one time, first contact fee. Or you may choose to pay upfront and receive premium services.
The BC Angel Forum - Technology and non technology pre-screened companies seeking equity financing of $100,000 to $1 million, deliver "live" presentations to pre-screened private and corporate investors.
Finding an angel investor is not a particularly easy task, but the effort will really pay off when you find the angel investor who is willing to invest in your business. Besides providing the capital your business needs, the advice and know-how of an angel investor can be key to shaping your company’s success.
See Attracting Angel Investors for more information.