Finding an Angel to Finance Your New Business

The second most common source of capital for starting and growing a business is an angel, also known as a private investor. (The majority of entrepreneurs start their businesses with personal savings,

So, how do you find one of these gift-givers from heaven? Unfortunately, that's the hard part because angels tend to keep a lower profile than any other type of investor. Entrepreneurs typically find angels through referrals from someone else. That's why networking with people in your industry is so important when you begin thinking about starting a business. You need to build up a personal network to tap when it's time to look for private investment capital.

How to spot an angel

Today, angel investors look a lot like professional venture capitalists. Angels typically ask you for the same credentials that a venture capitalist wants:

• A business plan

• Milestones

• A significant equity stake in the business

• A seat on the board of directors

The similarity between an angel and a venture capitalist came about because of the long bull market in the late 1990s when venture capital funding reached astronomical levels. Flush with cash, the venture capitalist stopped looking at deals that were less than $3 million to $5 million, leaving the playing field wide open for angels to step in and do bigger deals than normal, with the promise of a quicker turnaround.