Using Angel Capital Investors to Get Your Business Up and Running

Angel capital is a form of private venture capital which we have discussed in other articles.  The difference between angel capital and venture capital is that angel capital is provided by a single individual or a small network of investors, rather than a large venture capital company.  Also, unlike a regular venture capital company, which provides funding for growing businesses for expansion—as well as to help save poorly performing businesses or businesses that are failing –angel capital investors will usually only provide start-up capital for new businesses.

An angel capital network may consist of only a handful of investors – fewer than 10.  It could, however, have two or three hundred or more investors that pool their funds together.  Angel capital investors are extremely wealthy individuals who provide the money for their investments out of their own pockets.  The amount invested will usually be less than with a standard venture capital company.  The range is usually a few hundred thousand dollars to a million or two.  This is the most you can expect.

Since angel capital investors provide venture capital for new, unproven businesses with little or no track record, the investment is a very risky one.  I’m sure you’ve heard that risk equals reward.  A substantial number of new companies fail.  Recent statistics show the failure rate to be over 80%.  A large percentage of angel investments are lost completely.  Therefore a high return on the investment is both expected and necessary, usually between 20 and 30 percent.  You may think that amount is nothing short of usury.  Compare the angel capital investors to the large pharmaceutical companies.  The large US drug companies must spend billions of dollars on research.  They spend years in the testing stages and more time getting approval from the Federal Drug Administration.  These companies in the bio medical field experience high failure rates before they have success with a relative handful of new drugs.

But don’t feel sorry for them.  When they do have success with a relative handful of their experimental products – especially those that become “home runs” such as Viagra, Zanax, or Lipitor – they make a ton of money.  There were many angel capital investors in the late 90’s during the dot.com boom.  Money was much easier to get in those days.  But think about Yahoo, AOL, and Intel to name a few.  The angel capital investors that had money invested in those types of success stories became billionaires overnight.

Today angel capital investors are very careful about the companies in which they invest.  They will exercise their right to do their own due diligence.  They will also check on the background and track record of the principals of the companies they are considering to invest in.  Companies are  examined for growth potential first and foremost.  Angel capital investors usually will not invest unless there is a potential for a minimum 1,000 percent growth within five years.

Finding angel capital is certainly not an easy thing to accomplish.  There are a multitude of angel capital investors listed with ibank.com that users can connect with.  These users can then negotiate with investors and figure out personalized investment packages together that benefit both parties and help get businesses the funds they need.