Tuesday, 31 May 2016

ANGEL INVESTORS


Angel investors are investors, often retired entrepreneurs or executives, who may be interested in angel investing for reasons that go beyond pure monetary return. These include wanting to keep abreast of current developments in a particular business arena, mentoring another generation of entrepreneurs, and making use of their experience and networks on a less than full-time basis. Thus, in addition to funds, angel investors can often provide valuable management advice and important contacts.

Angel investors give more favorable terms than other lenders, as they are usually investing in the person rather than the viability of the business. They are focused on helping the business succeed, rather than reaping a huge profit from their investment. They are essentially the exact opposite of a venture capitalist.

If your business is nursing a new idea along but you need additional funding to take it to the next level, you have several options. You could get a traditional business loan from a bank or you could land venture capital funding. But, there is a gray area where bankers aren't willing to take the risk on your company and venture capitalists don't think your product is quite big enough to earn a significant return on their investment. Where do you turn? You turn to Angel investors.

Angel investors might be professionals such as doctors or lawyers, former business associates or better yet, seasoned entrepreneurs interested in helping out the next generation. What matters is that they are wealthy and willing to invest hundreds of thousands of dollars in your business in return for a piece of the action.

Advantages of Angel investors
1. Angels provide the startup funds you need
When all the funds you pulled together through your personal savings or gathered from family and friends are still not enough to start your business, angel investors can help you fill the needed equity gap. Since most startups require less than $500,000; most angels are able to single-handedly provide the needed funding for any business they are interested in.
Angel investors can provide about two-thirds of funding for new enterprises. Therefore, chances are high that you will get the funds you need from the first few angels you approach.

2. Angels make flexible business agreements
When compared to banks and venture capitalists, angel investors have more informal investment criteria. And their business deals are usually negotiable, since they are investing their own money. This flexibility makes angel investing an excellent source of capital for early-stage businesses.

3. Angels contribute their knowledge and experience
Since many angel investors are seasoned entrepreneurs who have funded and grown multiple businesses that later became successful, they can provide not only the capital you need, but also the contacts, expert support, and guidance that can help your business grow quickly. An angel investor’s insight and resources are usually of tremendous value to a company’s success. So, you should always recognize the need for their help and readily embrace their participation in the operation of your business (if they have much to offer).

4. Angels don’t mind taking huge risks
The bitter truth is that most startups fail. In fact, recent research revealed that only one-third of investments are hits, with the remaining two thirds making very little money or fizzling out of market shortly after launch. But most angels are aware of this fact, yet they optimistically invest in high-risk early-stage businesses that have not established a solid track record of success. Since they provide the funds you need to start your business, angels have no proven way of predicting whether your business will be successful or not in the long run. Despite this sore reality, Angel investors tend to be quite enthusiastic about most new businesses and often go ahead to invest in them.

5. Angels don’t require monthly fees
Another advantage of taking funds from Angel investors is that there are no monthly payments, such as the interests required by bank loans and credit cards. You pay Angel investors the share of your profits that equates with their investment, and that is only after your business starts to generate profits. So, with angel investing, you will be able to concentrate your time and effort into taking your new business forward rather than worrying about monthly interests and other fees that traditional lenders demand.

6. Angel investors are found everywhere, in virtually all industries
Nowadays, Angel investors can be found everywhere, not just in traditional financial centers and districts. They also invest in virtually all types of businesses. Most of them are involved in industry-specific investments, based on their interests and expertise. But some of them are attracted to other industries as well. So, if your business idea has the potential for huge profitability and growth, then you will most likely win the heart of an angel investor.

Disadvantage of Angel investors’ investment
1. Angel investors rarely provide additional investment when necessary
Because of the risk of losing even more money, most angels are unwilling to invest additional funds when this is needed to keep the business going or to save it from crumbling. They are only ready to invest more funds if the business is generating profits, not when it’s tanking.

2. Some Angel investors can be dubious
Though most angels truly look beyond the promise of monetary returns, some angels are greedy and are motivated only by money rather than their interest in promoting the growth of your business. These angels tend to be impatient; as they usually expect quick returns. Another trait of bad Angel investors is that they don’t show any concern about a business’s operations during the early stage of its development. To avoid falling into the trap of these bad Angels, it is crucial that you obtain complete information about the character and reputation of any potential investor before approaching them and agreeing to any terms with them.

3. Angel investing could be costly
In exchange for their investment in your business, angel investors would require a certain percentage of stake or equity in your company and expect a large ROI for their exit. To them, this is a reasonable bargain, since they are investing in a very young and risky business that has not yet been established. In addition, angel investors, in their desperate bid to foster the growth of your business, may hire skilled professionals to run your business. These professionals usually demand more salaries and wages than you planned for. Since angels have a say in the control of your business, you may have no choice but to run these costs.

4. An angel’s interference may lead to problems
The level of company investment varies from investor to investor. While it is expected for an angel investor to have certain amount of control in running a company, some angels abuse this advantage by trying to be dominant. The entrepreneur may be unwillingly forced to give up some degree of control in order to meet the angel’s requirements, which can often lead to embitterment on the entrepreneur’s part. Another common problem is when the angel lacks industry experience, but yet goes ahead to give wrong advice and mentoring that may lead to failure of the business. The above further explains why you should seek only angel investors with proven experience in their industry.

5. Angels do not have national recognition
There are well-documented directories of venture capital firms, banks, and other loan-issuing institutions. But there is no register for angel investors, which explains why they don’t have widespread recognition like venture capital firms and banks. This makes it difficult for entrepreneurs to locate them. However, we believe this trend is changing as angels are now organizing themselves into groups based on either location or their target industry.

What Angel investors look out for in entrepreneurs before investing their resources
                     The quality, passion, commitment, and integrity of the entrepreneurs.
                     The market opportunity being addressed and the potential for the company to become very big.
                     A clearly thought out business plan, and any early evidence of obtaining traction toward the plan.
                     Interesting technology or intellectual property.
                     An appropriate valuation with reasonable terms.
                     The viability of raising additional rounds of financing if progress is made.
                     Clearly articulated elevators pitch for the business.
                     An executive summary or pitch deck.
                     A prototype or working model of the proposed product or service (or at least renditions).
                     Early adopters or customers.

How long it will take to raise angel financing
It will always take longer to raise angel financing than you expect, and it will be more difficult than you had hoped. Not only do you have to find the right investors who are interested in your sector, but you have to go through meetings, due diligence, negotiations on terms, and more. Raising capital can be a very time-consuming process.

Question to expect from Angel Investors and the answers
1. What is your business all about?
This question, usually the first to be asked, may come in different words or tone. While some investors can will it directly, others will simply ask you to say something about yourself and your business. This question is one of the most important questions you will be asked, as your answer will determine whether the investor wants to continue listening or not. So, you should prepare a powerful answer that is both intriguing and entertaining.You must be able to present your personal and company information, plans, and credentials in a fast, succinct, and clear manner. Also, you must make sure that your answers are presented in such a way that the investor can easily remember pertinent data about your business.

2. What are you products and services unique selling proposition?
The Angel investors would like to know the unique selling proposition and competitive edge that your products or services have. While answering this question, you should present solid and reliable examples. Mention your major competitors and highlight how your offers will outperform theirs in the market. One bad way of answering this question is to say that there are no competitors because your business idea is just too unique. This statement has two implications: it either means that you have not done your market research well enough to find out your competition or that no one is trying your business idea because it is not profitable.
Also, in your answer, you need to show the Angel investor why other companies would find it hrad to copy your idea and why they would rather acquire your company instead. This will make the angel investor more interested and have confidence in your business.

3. How much capital do you need from me and how will you use it?
You must have calculated the exact amount you need to start your business and the amount you already have and the amount you will need from the Angel investor. You should also be able to back this up with a clear, accurate and feasible financial plan for the business which will explain how you came up with the required amount. Every Angel investor is impressed by a comprehensive financial research. So, do your homework very well in this regard before meeting the investor. Also, you must try to give practical and detailed information on how you will utilize the capital once you get the cheque.

4. What is your target market and how do you expect prospects to respond?
Before meeting Angel investors, try to meet some of your potential customers. Ask them questions regarding how they would accept your proposed products or services. You will need their responses as reference when presenting your idea to an investor. You must also be able to define your target market. Give important details such as where they are located, their spending habits and so on. You can refer to your business plan for more on this. Having ready answers to these questions will make an Angel investor feel more comfortable with funding your business.

5. What is your marketing strategy?
This is one of the most challenging questions from the Angel investors. You should be able to present your planned method for promoting your products or services. You must also describe how each method will boost profitability of your company and give you the competitive edge.
Promoting a new business usually require huge cost and the Angel investors fear losing their money on marketing alone. So, it is highly recommended that you disclose your marketing budget as included in your financial plan.

6. How long will you use the invested fund?
You need to be very careful when answering this question. The Angel investor wants feasible answer with precise calculations to support any claim you make. So, you must be able to present the time frame needed for the cash flow to appear. This may be a hypothetical period but it is important. A new business usually requires at least one year or more to start making profits. So, keep this in mind so that you will not set a trap for yourself by giving an unrealistic answer.

7. How much will I get from the company and the return on investment?
Angel investors would like to know their stake in your business. They would like concrete figures regarding their share of the business as well as their portion of the return on investment. So, be prepared to give these figures. You should also get prepared for negotiation.
Usually, Angel investors expect to get high returns on investment owing to the huge investment risk they will take by supporting your business. You should anticipate this and come up with a fair value that will be pleasing to them.

8. Who are your partners and what are their backgrounds?
Angel investors want to know about not only you but other founders or partners. They also want to know their background to ensure that the right individuals will run your business. In your answer, you should talk about your partners and why each one is indispensable to the concept. Also, do not forget to state the number of people needed to complete the team. This will give the Angel investor a clear picture of your company’s work force and give them the impression that you can grow your team over time.

9. How much are you investing in this business?
Your answer to this question can make or mar your chances of getting an Angel investor’s investment. A god answer to this question is to mention how much you have been able to pull together from your personal savings, family and friends and other sources. This will send signals that you are confident in your business idea and are ready to risk your own money on it. Telling an Angel investor that you have no money to invest will raise a red flag. It will send signal that you are unserious and are trying to take other people for a ride by gambling with their money while smartly keeping yours. This explains why you should try to pull together some funds from your end, no matter how little.

10. What if the business fails?
All investors understand that business is risky. Investment always comes with the possibility that the business may fail. With this in mind, Angel investors want to know how prepared for the worst. They want to know your strategic plan. So, you should be able to present strategic plans that can provide protection for investors. This can be in the form of secured position on assets and equity subordination.
Small businesses looking for financial help from angel investors often turn to individuals willing to invest in promising, start-up opportunities. Angel investors can be a good funding source to consider after you’ve tapped your friends and relatives. But angels usually don’t write blank checks. They’ll want to see progress and a way to exit the deal down the line with meaningful profits. So, expect angel investors to do a lot of research and careful investigation into your business plan.

Be thoughtful in approaching potential investors. Biotech investors, for example, don’t want to hear about a clothing manufacturer. A scattershot approach is likely to turn them off. Industry associations, local trade groups or, in some states, business-incubator centers can help point to potential angels.

Angel investors often invest through groups or networks. These provide due diligence, extra research, access to potential deals and shared expertise that one person operating alone generally doesn’t have. For instance, one member of an angel group might have background in a particular industry or the know-how to set up deal terms, sharing that knowledge with the other investors.

Angel investors are usually thorough, so don’t expect to get your money quickly. It could take several months to meet with different individuals or groups and answer all of their questions. (There are exceptions, including the case of Google, which got funding from an angel before its cofounders finished their presentation to him.)

Owing to the fact that they’ll own a part of your company, they’ll likely want a say in major decisions, and they’ll watch to see whether you listen to them. Don’t expect them to write a check and walk away. Many angel investors are former business owners who want to help people like themselves. They may be able to provide good advice based on their previous experiences.

So, getting funding from angel investors isn’t easy, but it can be done if you take the right approach and are a good match with their interests. And the benefits can beyond the money for your business, but their expertise in both in business operations and your industry niche.
In conclusion, Angel investors know that they are taking hug risks by investing in your business. So, you should be able to convince them that you can grow their investment by growing your business. You can only convince Angel investors if you know how to deal with them. The best way to learn this is to rehearse your speeches, presentations and answers so that you will appear confident and knowledgeable. Every word that comes out of your mouth must be powerful enough to leave a good impression on the Angel investor’s mind.
It is worthy to note that Angel investors do not limit their questions to the ones mentioned above. So, you have to be prepared to answer questions on every aspects of your business, market and industry. The only key to providing mind-blowing answers is to study your business plan very well. But bear in mind that your answers will be impressive only if your business plan is comprehensive and well-prepared.

 Skills entrepreneurs should have to Successfully Raise Startup Funds
1. Strong determination
This is the most important quality that you need to succeed in your fund raising quest. Without strong determination, you would quickly give up after facing one or two of the harrowing challenges that accompany the process. Determination is a product of passion and self-belief. When you are passionate about what you do and you strongly belief in the workability of your product, determination follows. Determination toughens your skin towards rejection, it keeps your eyes fixed on your long-term goals and blinded to the harsh challenges that you will encounter along the way. It helps you stay on track and fuels you with optimism.

2. Patience
Some investors or loan-issuing institutions could be very annoying. They may take too long to review and respond to your proposal, leaving you to fall sick of suspense and anxiety. Worse, they may reject your proposal for flimsy reasons even after showing great enthusiasm initially. As far as raising funds for your business is concerned, you are at the mercy of these investors or loan-issuers; even though you own the business idea or concept. This is truer especially when you are a first time entrepreneur without much business experience or track record. So, you must be ready to play along with them if you really want to succeed.

Some investors would eventually buy your idea after making you believe that your business idea is not worth a dime; or doing all sorts of things that would make you think they are not interested. You never can tell what an investor’s final decision would be. So, don’t blow your chances by acting or reacting unprofessionally. Give potential investors or creditors all the time they need to make a decision that satisfies them. Also, you should never try to force your idea down an investor’s throat, as this will send wrong signals that may make them nurse doubts over your idea. If your idea is promising, you will get the funds you need. If you get a negative response, then take it in good faith. It may not necessarily mean that your idea isn’t good. It may be because the investor or creditor doesn’t just have enough funds to pump into your idea, or your idea is in his / her industry of competence.

3. Business sense
The next trait investors look out for in entrepreneurs seeking funding is passion and core competence. No investor/lender would want to put money in a fly-by-night idea; they want to put money in a business that the entrepreneur is truly passionate about. Most importantly, investors/lenders want to put money in a business where you, the entrepreneur is willing to work for free; at least to some certain extent. Also, you must be very knowledgeable about the business you are raising funds for. In fact, you must know your business industry like the back of your hand to the extent that even if you are awakened from sleep and questioned about your business, you will deliver without stuttering.

4. Your sales skills
The last and most important key to your fund raising success is your ability to sell, and this prevails over most other factors. Now why must you learn how to sell? Selling is a crucial skill that you must have as an entrepreneur, and this is because when it comes to raising funds, the commonest question on the lips or in the minds of investors and creditors is, “What are you selling?” In addition to introducing your business idea and your plans for actualizing it, you must be able to explain how the investor or creditor will gain from the deal. Investors want a healthy return on their investment. And though they know you cannot be 100% accurate, they want an estimate of how much profit they will get back from the business if they invest their money.

To up your chances of getting the funds you need, you must be able to brilliantly present the business model as well as its profitability. This is why sales, persuasion and presentation skills are very important to the fund raising process. Here’s how to sell your business idea to investors.

Where to get Angel investors
1. Alumni events
When you attend your college’s or university’s alumni events, you will find and meet lots of people, many of whom would be very interested in funding your business as angel investors. With these wealthy individuals, you already share a connection; the same Alma Mata. So, you have a foundation to build on, and you won’t be regarded as a total stranger.
So, you should try to attend the next meeting of your college’s or university’s alumni and make efforts to meet one or two prominent people. Feel free to interact with them. If they are not investors themselves, they will probably link you up with others who are investors and that is exactly what you wanted, right? If you are the type that frets at the idea of meeting and interacting with new people and explaining your needs or plans to them, then you may wait endlessly to find an angel investor. This strategy won’t work for introverts.

2. Online forums
While there are many offline avenues where you can meet angel investors, you have brighter chances of meeting them online, too. There are plenty of online communities that you can join. But you should target the business or investment section of general forums like Nairaland (a huge discussion board for Nigerians). Better still, you can search Google for online discussion forums that are made solely for entrepreneurs and investors, such as Investors Hub, Investors Village, and Silicon Investor. You can go ahead and register with these online communities and check if there are threads by investors looking for businesses to support. If you find any, you should respond to the poster and make arrangements on how to better communicate your idea. But if you cannot find any such threads, create a new one, calling on interested investors to support your business. You will most likely get relevant replies.

3. Social media
Since almost every internet user has an account with the major social networking sites, you have bright chances of meeting angel investors on these platforms, too. Of the major social media platforms, LinkedIn seems to be the most appropriate for locating investors that are likely to support your business with the startup funds you need. This is because the network is made basically for establishing professional connections between individuals.
Using LinkedIn’s search feature, you can locate angel investors in your locality. Facebook is another platform where you can easily find angels around you, but the search process may be more difficult than on LinkedIn.

4. Angel investment groups
As stated earlier, angel investors now come together to form angel investment groups. This is with the aim of combining experience, expertise, and funds to support more businesses and make bigger returns. You can get angel funds for your business by reaching out to angel investment groups. These are large angel investment firms in the U.S that you can try contacting with your idea. Nigeria-based entrepreneur may be unable to locate angel investing groups in the country. So, look at other avenues to meet individual angels in Nigeria or foreigners that are interested in investing in Nigeria.

5. Local Business and Networking Events
Every city has local events that attract business owners and entrepreneurs. Truth is, many of these business owners are either angel investors in some other businesses or have connections with angels who will readily invest in your business. Again, ditching every form of shyness is your key to success. You can find about these events on sites like Meetup, Eventful, and Eventbrite. To find events that are relevant to your need, you should type “entrepreneur” in the search columns on any of these sites.

6. Industry conferences and trade shows
Industry conferences and trade shows are great places to find and connect with angel investors. Successful people who are interested in funding startup businesses attend these events. And since these individuals are attending such a conference, there are chances that they know your industry. This makes it easier for you to educate them on your business idea and often gives them the ability to give you strategic advice.

7. Chamber of Commerce meetings
This is one of the best places where you can meet a large concentration of business owners and potential angel investors. So, attend these meetings whenever they hold at venues near you.

8. Seminars and workshops
Seminars and workshops are held from time to time with industry experts in attendance. These gatherings discuss tips on how to leverage latest trends and technology or how to exploit new business opportunities. While some seminars and workshops are targeted at players in specific industries, others are relevant to a large, mixed audience. If you think a seminar will most likely attract angel investors, chances are high that it really will. So, try to attending such seminars. Even if you don’t meet an investor, you still would have learned some important things.

9. Radio or TV shows
Some radio or TV shows feature prominent individuals who are big players in their respective industries. Be an ardent fan of any such shows that features business moguls and potential angel investors. You may just get an opportunity to meet the angel investor of your dreams.

10. Your Board of Advisors
If you’re smart, you have a board of advisors that formally guides you in business decisions. As these business savvy individuals are close to your business, they may want to invest. You can also consider wooing a potential angel by inviting them to be on your advisory board.

11. Venture Capitalists
Believe it or not, your venture capitalist contacts can lead you to angel investors.
Remember, they are managing the funds of wealthy investors. Some of those investors may be interested in leading a round of angel funding — or know someone who would.

Angel investor in Nigeria: Lagos Angel Network (LAN)
The Lagos Angel Network is the premier angel network in Nigeria and one of the most active in Africa. Founded in 2014, Lagos Angel Network with foremost Nigerian investor, Dotun Sulaiman as Chairman and Tomi Davies, Collins Onuegbu, Tokunboh Ishmael, Dipo Adebo, Segun Olukoya and David Richards as board members, is helping to create a network of business angels that put startup funding and mentoring into early-stage ventures in Lagos, Nigeria. Since its creation, LAN members have invested in over a dozen Lagos startups.