Tuesday, August 9, 2016

Finding An Angel Investor Is Not the End of the Search!

With all the press that angel investors are getting these days, many would be business owners and entrepreneurs probably think that finding an angel investor is the answer to all of their prayers, and the end of their search for funding.

While that may be true for a small number of entrepreneurs, the reality is that many entrepreneurs who receive angel funding still have to face traditional financiers and venture capitalists at some stage. In this article, we look at what angel investors do, and why you might still have to search for funding again in the future.

What Do Angel Investors Do?

There are many different types of angel investor out there, and while some do offer full financing for the companies they back, the majority offer what is known as seed capital to start ups.

Seed capital is usually a small amount of capital, which gives an entrepreneur the funding they need to start their business, and get it off the ground. It’s often enough to get your business from an idea to the start of profitability, but in many cases, once you reach profitability, and you want to expand, you will need to seek additional capital.

That additional capital is often referred to as growth capital, or first round funding in the world of venture capital. It builds on the start you’ve made with angel funding, and it’s often as necessary as the capital you need to start your business.

What’s the Point?

If you’re shocked to find that you might still need to look for traditional or other funding later on, and you thought that angel funding was going to solve all your problems, you’re probably wondering what the point is. Why bother to find angel funding if you’re only going to have to find more funding later on.

Well, the simple fact is that angel investors are often much more likely to finance new, untested businesses. They may also have a much higher risk appetite than traditional financiers, and they’re probably more willing to invest in your idea than anyone else is.

Angel investment is often the stepping stone you need to take your business from idea to working concept, and once you’ve proven that it’s a solid idea, and that it can make a profit (and you have the results to back up your claims), you and your business will be much more attractive to traditional financiers!

What to Expect?

When you work with an angel investor who is offering you seed capital, there are a few things you need to bear in mind.

First, you need to realise that often, angel investors provide small amounts of funding. Since angel investors are often private individuals, and often someone you know, you probably can’t expect huge amounts of cash! Some of the biggest companies out there got their start thanks to angel investors, but they only received a few hundred dollars in some cases!

Angel investors will usually also want to be involved in some way. Most will expect regular updates on your progress, and some will want a more hands on role, but nearly all angel investors will expect an equity stake in your company.

What’s Next?

The goal with angel finance for start-ups is to give you just enough cash to turn your business idea into a profitable reality. Once you’ve done that, and have been running your company for a while, you will probably need to approach a financier with your business plan, and proof of your results. At that point, you might pay your angel investor back for their investment (plus interest or any other fees they may charge you) or they may decide to retain their stake in your business.

However your angel investment deal is structured, however, and whatever you need to do later on in terms of funding, it’s important to remember that angel investment probably won’t be the last time you seek funding, so think of it as a stepping-stone, rather than a finite solution!

Tuesday, August 9, 2016 by Ben Botes · 0

Sunday, July 22, 2012

Raising Money through Crowd funding

For as long as there has been money in South Africa, people have been trying to get their hands on it for one reason or another.  For some it is just a matter of personal gain, for others it is to keep a roof over their families heads and food on the table.  But for some, it has been to create a business plan and start a business or create a work of art, or other goal geared towards contributing to society as a whole.

There are hundreds of ways to raise money and most of us have been involved in some form of it or another all of our lives.  Starting with the child on the corner selling lemonade to passerby's, to community bake sales, car washing services, street performing and the like.  All of these activities involve raising money.  The problem with them is that they normally only raise a small amount of money at a time and require a great deal of effort on the part of the people working them.

Crowd funding is a new way of raising money in South Africa.  Think of crowd funding as a community bake sale, except it's happening simultaneously all over the world.  All of those little sums of money the bake sale generates add up to a large amount that can be used to fund any type of business or project.  The vehicle used to carry on this worldwide bake sale is the internet.

Raising money through the internet is nothing new either.  However it has in the past been the unfortunate victim of scam artists trying to fool people into sending them money.  Because of this raising money through the internet was given a bad rap.  Now though through the use of professional crowdfunding sites it is possible to legitimately raise large sums of money over the internet.  These professional sites make raising money easier because they have reputations and standards to meet to comply with government regulations so people are more willing to trust them.

Raising money through crowd funding is used mostly by business start-up entrepeneurs as well as artists, musicians and film makers.  These are people who do not qualify for financing either through angel investors or venture capitalists but still have a great idea or project that they would like to bring to the public.  So instead of going out and washing cars or having a bake sale, they make a video explaining their project, the benefits of it to society, why they can be trusted, and what their long term goals are.  This video is then placed on these crowd funding websites where people can watch them, get more information, and if they decide to they can invest in that project.  These small investments from hundreds of people add up to enough money to get the project off the ground.

Another means of raising money is using your own network of people you know.  Start off with your friends and family.  Tell them about your project and that you are raising money to make it a reality.  This is the most common form of crowd funding and has been around forever.  Then take your message to the people through social media and press releases.  Tell them about why your are raising money and also why you have chosen crowd funding as your vehicle to come up with the capital you need.  Let them know what the benefits to them will be for investing in you and build their trust.

Raising money through crowdfunding can happen very quickly if your message is a strong one that motivates people.  Or it can take some time to build up momentum.  The most important aspect of raising money through crowd funding is you continue to spread your word on a daily basis and be open and honest with the people you hope will invest in you.

Sunday, July 22, 2012 by Ben Botes · 0

Tuesday, January 31, 2012

Consideration when investing in a business

As an investor hoping to get involved in a new business opportunity or simply invest in a viable business plan it is crucial that you do your due diligence on the opportunity that you are investing in. But this is of course not the only consideration. Understanding the industry, the market and of course the people in the new business and ensuring that you feel comfortable with the elements are also of the utmost importance. Here we look at a few additional steps to take and issues to consider before you make the important investment choice.

Research: Whether you are a beginner or have an experience in making business investments, a thorough research is very important and the foremost prerequisite. It could get real frustrating at times for you to select the right opportunity out of those hundreds other business opportunities that may not be legitimate. There can be different kinds of franchisee businesses that may look worth investing, but may not be advisable. It is always very important not to skip any detail while doing a research on the possible investment opportunities.

Background Verification: If you decide to contact a company with an interest for investing into their business, you should not miss out any important questions that could be relevant to the business. For example, knowing the possible span of the contract period and exact figures that you need to invest for a particular business are helpful for finding the suitable business investment opportunity. You must also check different business bureau websites that provide information about the legitimacy of companies and businesses you might be targeting. It would be really helpful to know if a particular business or company has any legal complaints and lawsuits against it.

Reference Checking: Before taking any decisions on business investments, you should always refer to certain reliable sources, such as taking advice from people you can trust, consulting family members who are into a business, or other successful investors who have experienced into franchisee business.

Hall of Commerce: To invest in the local market, a wiser way to proceed would be to consult the local hall of commerce, which is present in almost every city. You get an opportunity to consult with other successful businessmen and business organizations as to how to start and grow a new business and to learn investment tactics. Moreover, local businesses or groups watch out for interested investors to help them expand their existing businesses.

Investment Advisor: If you are a beginner into this field, choosing the right business investment opportunity can get real risky if you do not have an expert investment manager or advisor. An investment manager can give expert opinion about specific business investments based on your requirements and affordability. Knowledge about business investments is a significant factor in choosing the right opportunity. It is therefore advisable to always hire an investment manager before joining the bandwagon of new business investors.

An ideal business investment opportunity can also be helpful to enter the global market. If you are already an investment expert and can bend your priorities well to match the international market, you can also consider investing on some international businesses. You can find information about investing into global markets from various Internet sources.

As always, the list is of course almost never conclusive. Yes the owner of the business, his business plan and track record would give you plenty of indications on weather his business is for you but in addition to that trust your gut, ask a trusted friend or colleague for their opinion and make sure you have a strong affiliation with the business that you are getting involved with.

Tuesday, January 31, 2012 by Ben Botes · 0

Tuesday, November 1, 2011

Invest in a Business You Can Influence

One of the main reasons an entrepreneur will be approaching you with their business plan and off you a stake in the business is to get you involved. This is especially true for early stage businesses and new entrepreneurs. These businesses want you to get involved. They are looking for your experience and contacts as well as your investment into the business. Angel investment is much less about investing your money and waiting for a high return and much more about getting involved.

Yes of course no entrepreneur wants you to interfere so drastically that they feel both intimidated and out of place in the own start-up. But getting involved with he right attitude can benefit both the business and of course you with your investment.

Investing in a company as an angel is an intimate affair. You commit only after a thorough due diligence process evaluating the potential success of the idea.  You evaluate the talent and drive of the founding team.  It’s about people, and the company comes to hold a special place in your heart.
Traditional investments like stocks?  They’re just a ticker symbol in a chart, affected by powers far-removed from your own.
Right?  Isn’t one of the best things about angel investing that you get to participate in how well your investment turns out?

It’s Not Just Your Money They Need. 

My ideal vision of an angel deal incorporates something much more than money.  Forget about being a “passive investor”.  That’s just as boring as a mutual fund.

When you put your money into a company, hopefully it’s partly because you feel it can benefit from your experiences in business.  So you’ve grown 2 online companies through strong search marketing and sold them?  That’s awesome, and you should be finding companies that can benefit from that experience.

Of course you’re not necessarily going to come in and be the CMO.  But the 1 email per week you can give your entrepreneur could be worth R1 000,000 to the bottom line.  The one answer per week that you can provide about a tough marketing decision could make all the difference in the world.

Go With What You Know

It’s only natural for people to be drawn to things they understand.  In angel investing, that means you’ll likely gravitate towards companies that mirror your own past experiences.

That’s a good thing!  Take your money and your advice to places where it’s mostly likely to be useful.  I’m not about to invest in a pharmaceutical manufacturer, but I’ll jump all over sleepapnea.com.

Remember – You Can Contribute

The “passive” angel investor annoys me, especially if he/she bemoans the poor performance of their investments.  If it’s your Energizer stock, that’s one thing.  If it’s the R50,000 you put in 2 angel deals in 2008, well do something about it. I’m sure your entrepreneurs are open to ideas, help, connections, and insights.  Getting your hands dirty an only be a good thing.

Make sure that you get involved with the type of personality that will enjoy getting you involved. someone who is not protective over their own business plan to such a level that they are not open to learning and benefiting from others ideas.

Tuesday, November 1, 2011 by Ben Botes · 0

Wednesday, October 19, 2011

Second Round Business Funding: What You Should Know

When most people think business plan and business funding, they think start ups. New businesses, with no track record, looking for seed or start up capital.

However, while that may be the most popular notion, when it comes to business funding, it’s certainly not the first time that companies need to find funding!

In this article, we look at second round business funding: funding to help you grow, expand, and improve your existing business.

When Is Second Round Business Funding Necessary?

The first thing you need to find out about second round business funding is when you might need it.

Traditionally, companies apply for second round business funding when they have already established their business, are successful, and are looking to take their company to the next level.

Usually, that means expanding into new markets, investing in tools or equipment that allows them to expand capacity, or some other expansion designed to increase revenues and profits.

Second round business funding is NOT something you apply for because you’ve spend your first capital investment, without achieving your start up goals! If you try to apply for funding just because you’ve run out of money, you’re likely to find a lot of doors closing in your face, very quickly!

Who Can You Approach for Second Round Business Funding?

This is a trickier question. In some cases, particularly if you have received business finance from a bank or traditional lender, you might be able to approach your loan account manager for second round funding, however, it may be tough to convince them, and you would need collateral to secure the loan.

In many cases, businesses looking for second round funding turn to venture capitalists or angel investors, who are generally more willing to take an equity stake in an up and coming company, and are less risk averse.

Sometimes, you may even find companies in your industry, who are willing to take a stake in your company, particularly if you offer complimentary products or services.

How Do You Apply for Second Round Funding?

Applying for second round business funding is a lot like applying for the first loan or investment you got. You’ll still need a business plan, you’ll still need to pitch, and there’s still a lot of red tape involved.

This time around, however, instead of selling your idea, you’ll be selling results. You might include ideas – in the form of expansion plans and new markets or products, but investors considering giving you second round business funding will want to know how your company has been doing so far.

If you can prove that you’ve grown significantly, that your products and services are in demand, and that your team works well together, then you’re far more likely to get second round business funding.

The Upside of Second Round Business Funding

The good news for business owners looking for second round business funding is that this time around, you’ll be on a much better footing, when it comes to negotiations.

Brand new ideas, untested companies, and new entrepreneurs often have to give in more to secure the first round funding they need to start their companies. Entrepreneurs looking for second round business funding, who already have a successful business that they want to grow, have more leverage at the negotiation table – and probably more people willing to invest.

It’s not unheard of for companies who self fund to successfully secure second round business funding too, so if you’ve been working hard bootstrapping your company, and it’s paid off, there’s every chance that the next growth phase of your business could come from outside funding sources!

So if you are looking for second round funding, start polishing up that business plan! You’re going to need to prove just how great that idea turned out to be!

Wednesday, October 19, 2011 by Ben Botes · 0

Tuesday, October 4, 2011

How to Scare Off Angel Investors

There are countless articles out there about how to find angel investors, and how to turn business angels into the ticket your business idea needs into the big time. Have you ever considered, however, what scares business angels and angel investors away?

In this article, we look at sure-fire ways to scare business angels and angel investors away, so that you can avoid them when you are pitching.

1. No Business Plan

Again, this is an offshoot of our tendency not to take angel investors seriously. We think of them as a friend, rather than a business partner and too many people make the mistake of giving them a half baked business plan, or none at all.

An angel investor may meet with you on the golf course rather than in a boardroom, but good business angels are also shrewd business people, and they will want to know that you have a solid business plan. Make sure that yours is as good as you would offer a venture capitalist, and you should be fine.

Remember, it is better to be overly formal, and give your potential angel investor too much to work with, than it is to miss out on the deal of a lifetime because you did not bother!

2. Treat Them as Anything Other Than an Investor

Too often, we think of angel investors as something other than a ‘real’ investor. We all seem to think that because it is a less intense relationship than you would have, with say, a bank, they are something other than a fully-fledged investor.

However, think of it this way. The money they are going to put into your business is real, so the investment is as real as any other is. If your relationship is casual, that is fine, but always remember that while it is okay to be friendly, you are still dealing with a bona fide investor in your company.

3. Overvaluing Your Business

Often, you believe that you have a multi million-dollar idea. You decide to offer your potential angel investor twenty percent of your company, based on this future valuation of your business, and the deal falls through.

The reason is simple: while you see your business as having the potential to earn millions, your business angel is looking at what it is now – and probably thinks that something closer to fifty percent is fair compensation for risk.

No one wants to give away more of their business, but think of it this way: without your angel investor, you probably do not have a business, and while it hurts to sign away a sizeable chunk of that potential company, you have to consider that 100% of nothing is still nothing. Sometimes, you have to negotiate with what you have now, in order to secure the future.

4. No Exit Strategy

We entrepreneurs tend to get caught up in the here and now. We are so excited about our idea, and the potential it has to change the world, that we forget that most business angels do not want to be involved with start-ups forever.

Most angel investors want a clear-cut, documented exit strategy in place, so that they know that in five or ten years, they will get their investment back, plus a tidy profit.

Consider whether you will list your business, sell it, whether management buyout is an option, or anything else, and make it clear to potential angel investors that you will be giving them a way out of the deal after a definite time period has elapsed.

Think About Their Fears

Angel investors are a special breed. They often invest in companies that no one else would consider putting money into. They have an appetite for risk that makes them the perfect partner for start-ups, and they are usually the light at the end of a very long, very dark financing tunnel!

Make sure that you put yourself in their shoes before you pitch your idea, and identify any potential fears they have. Then do your best to allay those fears and you might just find that a business angel is your start-ups best chance at the big time after all.

Tuesday, October 4, 2011 by Ben Botes · 0

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.

Monday, September 26, 2011 by Ben Botes · 0

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