Finding Angel Investors
Posted On June 13, 2019
Loans can come from angel investors, although they do carry a very high interest rate. Angel investors are providing high-interest rate loans secured by both tangible assets as well as real estate (usually in the form of hard money mortgages).
You should be aware that you may be required to provide an upfront fee to an angel investor that gives you with a loan. As an alternative to angel investors, you can work with an SBIC. Many small business investment companies are not directly looking to take a considerable percentage of your business.
When you work with an SBIC, it is imperative that you showcase how you intend to use the funds that they provide – whether they are providing debt or equity financing. As stated earlier, angel investors typically do not make loans to businesses, so going down this road may be a long shot for your business. Not every company is suited for an angel investor.
How much equity you sell is up to the quality of your business, and if you do not meet requirements, then you may be required to put up a substantial amount of your business for sale. Hard money may be an alternative for you as it relates to raising money from outside funding sources if your business can handle a high-interest rate loan.
It should also be noted that angel investors often form limited partnerships to syndicate investments. Before you send any materials to a third-party, your attorney should review every document that you produce – especially if you are working with a syndicated group of investors. In almost all circumstances and the raising capital, an investor is going to want to have a seat under board directors.
This is often a fact that cannot be ignored. As we have stated many times before, you are going to need to have a significant business plan when working with an angel investor.
The economic analysis that is required in your business plan can be completed by a business planning firm or your certified public accountant. Incorporation is an essential part of the angel investor process.
There are several differences between working with angel investors versus working with venture capital firms. The mezzanine financing usually comes in with a lesser cost than the start of the funding.
Mezzanine financing is less risky for investors because the business already has an established operating history. You can generally only secure mezzanine financing if you are an established business.