An angel investor is a great funding option for small startups.
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What do you do when you have a great business idea, but don't have the money to fund it? While some entrepreneurs turn to small business loans or crowdfunding, others seek out angel investors, individuals or groups of individuals who invest in startups in exchange for an equity share of the company.
An angel investor is an attractive funding option for startups that are too small to attract venture capitalists, who generally invest larger sums of money. According to recent research, angel investing is on the rise, and many angels plan to increase the number and dollar amount of the investments they make in 2014.
Chris Camillo, an author, entrepreneur and angel investor whose recent ventures include automotive software company eCarList and social analysis platform HedgeChatter, has worked with many early-stage startups to help bring their business ideas to life. Camillo offered these five tips to entrepreneurs who want to appeal to angel investors: [What Are Angel Investors?]
Create adream team. Angels invest in people and ideas, not valuation models. Investors must perceive the management team as capable of delivering on the company's vision and goals. Choose partners and other key team members based on complementary skills. For example, a technology startup could have one highly business-savvy founder and a highly technical one.
Be transparent. Attractive startups understand both what angels are excited by and what they're scared of. In particular, they are transparent and address questions of risk upfront. Losing money is a fear, but not necessarily the biggest one early on, which is often perceived untrustworthiness and other character flaws.
Know whom you're pitching. This may seem overly simple, but entrepreneurs will have the most success when they seek out the ideal investors for their project. Many angels tend to favor a particular sector, and angel-investing groups can revolve around a theme, such as clean tech, biotech, consumer products or even female-owned companies. Targeting your pitches is preferable to an impersonal mass pitching approach.
Prove your worth. Startups need to properly vet their idea and business model before they can expect to receive large amounts of investment capital. Crowdfunding is an excellent way to prove market validation, especially for consumer technology and product companies. Angels and even some venture capitalists may use this as a filter to determine if a startup is promising.
Focus your efforts. Many startups are understandably worried all the time about how to keep the lights on. Startups should focus on building the best possible product/service/company for their target customers. If they get that part right, the other pieces — like funding — will fall into place.
Originally published on BusinessNewsDaily.