Monday, September 26, 2011

Considering an Angel Investor? Read This First!

If you have heard about business angels, and you are thinking that an angel investor sounds like just the ticket to take your business from idea to business plan to reality. However, there are some cases where an angel investor may not be the best thing for your business. Here are a few things you should consider before you jump right into a deal with the first business angel who says yes.

Do You Really Need the Money? The first question you need to ask yourself is whether or not you really need money from an angel investor. Most of us fall into the trap of becoming all starry eyed when a business angel offers us money, but unless you genuinely need the capital, it may be better for your business if you at least tried to go it alone, and bootstrap your company. Remember that most angel investors will want an equity stake in your business, and while that’s a good deal if you need to raise funds, and have no collateral, giving away chunks of your company for no good reason doesn’t make good business sense!

Are You Being Used? It may sound like something out of a mafia movie, but it is not unheard of for less than scrupulous business people to use small businesses to launder funds, or for other illegal purposes. Be very wary if any potential angel investor wants to invest cash in your business, or if they invest using a convoluted process that involves shell corporations or anything else that makes you suspicious.

Remember that if you are associated with an angel investor who turns out to be involved in dodgy dealings, you will automatically come under suspicion too, and it could potentially spell the end of your business, even if you are not guilty. Try to remember that due diligence works both ways and that while you are being evaluated and looked into by your potential angel investor, you should be doing the same with the potential investor.

Are You Willing to Have Someone Looking Over Your Shoulder? Ideally, from the entrepreneur’s perspective at least, the angel investor is someone who considers your idea, takes a small stake in your business, hands over funds, and turns up at quarterly shareholder meetings. However, in reality, there are plenty of angel investors who are much more hands on than that.

Many of them are established entrepreneurs and business people themselves, and that means that they generally have lots of experience and knowledge to share. While it can be great to have a seasoned veteran on your team, who takes and active role in your business, it can become a nightmare when you find yourselves clashing, or if you take on an angel investor who doesn’t know enough about business, but feels entitled to be involved in decisions because it’s their money you’re working with. This should not deter you from looking for an angel investor if you genuinely need financing, but you should make sure that you have all the details about involvement in day-to-day decision making or running your business ironed out, and on paper, and you should be fine.

Angel Investors Are Great – Most of the Time The truth is, in the vast majority of cases, angel investors ARE the answer to your prayers. But in a tiny minority of cases, they are not. As long as you are cautious, and not blinded by the possibility of getting the money you have been chasing for so long, you should be fine. Treat it as you would any other business deal, and funding from a business angel CAN be the best thing to happen to you.

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