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The E- Guide to Angel Investors


Notice to the Reader THE E-GUIDE TO ANGEL INVESTORS Copyright Š by WEOP Inc. 2011 By purchasing this ebook you are stating that you are fully aware that you will be sent the ebook or download link via email and that this purchase is NOT refundable. Legally, you can save one copy of the purchased ebook to disk for your own personal use. However, it is illegal to distribute your copy to those who did not pay for it. You may not distribute the ebook to other individuals by using email, floppy discs, zip files, burning them to CD/DVD, selling them on any type of auction website, making them available for free public viewing or download on any website, offering them to the general public offline in any way, or any other method currently known or yet to be invented. You may not print copies of your downloaded book and distribute those copies to other persons. Doing any of these things is a violation of international copyright law and would subject you to possible fines or imprisonment. Violators will be prosecuted to the fullest extent of the law. All rights reserved. Except for use in any review, the reproduction or utilization of this work in whole or in part in any form by any electronic, mechanical or other means, now known or hereafter invented, including xerography, photocopying and recording, or in any information or retrieval system, is forbidden without the prior written permission of both the publisher and copyright owner of this book.

Introduction So you’ve got your product or maybe a great idea to start your business, but not the money that is required to fund it. Maybe you’ve tried raising the money on your own or getting a loan from the bank but it’s just not working. Don’t give up hope yet - there may be one outlet that you haven’t tried yet, angel investors. Angel investors are wealthy individuals who are looking to invest in start-up businesses or those in the early stages of development. Angels are usually former or current entrepreneurs who are doing quite well and they have great insight on how to make businesses succeed. They not only provide those they invest in finances, but provide networking opportunities and often serve as mentors as well. Some angels prefer to invest in industries that they have experience with and others prefer to invest in businesses within a specific geographical area, but regardless the angel, they are all looking to INVEST!!

The amount that angels are willing to invest depends on the angel and can span from one hundred thousand to one million dollars. Angel Investors are smart and savvy business people and will have certain requirements before they make an investment in your business. For example, an angel investor may require that they are shareholders, partial owners, and/or have the ability to make decisions within the company. The degree of control that the angel possesses varies from angel to angel. Some angels want to serve on a board for your business, others reserve the right to step in if the business begins to fail, and yet still others expect to have a major say-so in the running of the business. For this reason it is important that the young entrepreneur is not too anxious and willing to accept anything that the angel proposes. Instead, the angel investor should be examined and researched by the entrepreneur just as much as the entrepreneur is examined and researched by the angel investor. Before signing on the dotted line, the entrepreneur should make sure that the structure of the relationship with the angel is completely spelled out in a contract. The angel and the

entrepreneur should go over how much input the angel will have in the running of the business before agreeing to work with one another so that the angel doesn’t take charge of the business. Those looking towards angel investors for funding should keep in mind that angel investors often invest in start-up businesses because they want a high return on their investments. For this reason they tend to invest in businesses that have a high potential for growth or businesses that are in emerging fields that will continue to grow as time progresses. Even with all of this information, there is still a lot unknown about angel investors because many investments are made quietly and the conditions of the investments vary from angel to angel.

Here is a quick re-cap:

Good vs. Bad Angels While the word angel gives many starry eyed entrepreneurs the idea that these investors are sent from above- investing in businesses that many others wouldn’t dare invest in, some angels are not angels at all. Listed below are five (5) characteristics to consider when deciding to work with an angel investor. To go along with the list of behaviors to watch for are reasons to watch out for these behaviors. This information is supplied so that you can understand why each of them may be problem, even if it may seem like a good idea in the beginning. Additionally, sometimes angels may exhibit the behaviors cautioned about, but for good reasons. It is up to the entrepreneur to weigh the costs and benefits of the angel’s behavior before deciding what course of action to take.

-Hands on Angel *This can be a problem because: -The angel may make poor decisions themselves -The entrepreneur may become overly dependent on the angel -It can lead to constant battles with the investor on decisions *You will need guidance and assistance from your angel at times, but remember that you should be capable of running the business alone after the angel leaves.

-Too Much Control Angel * This can be a problem because: -Most entrepreneurs want their business to be majority owned by them since they put in the work and got it running -The intentions of an angel asking for 50% or more of your company may be deceptive. The angel and their intentions should be examined closely. *Some entrepreneurs want to sell their businesses to someone else, in this case the arrangement should be closely examined and the entrepreneur should weigh their options to closely examine the benefits of giving an angel over 50% ownership of the business.

-Run Your Business Angel * This can be a problem because: -They can become overly critical of all of your decisions in a way that is not constructive to the business -An angel that is overly concerned with earning their investment back or blinded by their past entrepreneurial successes may have you make certain decisions too early in an effort to speed up the process -This takes power away from the entrepreneur who will end up having to learn how to run the company once the angel leaves

-Do Anything Angel *This can be a problem because: -An entrepreneur should want an angel that has expectations and sets goals etc. for the business -When no guidelines or goals are set, money can be wasted funding poor decisions and in the end the money will run out with nothing to show for it -Don’t Understand Business Angel * This can be a problem because: -Sometimes people have the money but not the brains to help you and your business -You may be working with an angel investor with no experience *Just because you come across an angel investor that you don’t want to work with doesn’t mean that you should write them off completely. Through networking you may be able to meet some of their friends who know more about investing and business that could be a better match for you.

Qualities of a Good Angel Now that all of the bad characteristics that angel investors can possess have been outlined, let’s take a look at some of the positive attributes angel investors may have or some of the positive actions that angel investors may take. This will help you so that you can not only see when you have a bad angel investor, but can realize when you are working with one that is good as well. There are dozens of characteristics to look for, but outlined are 5 positive things that entrepreneurs may want to take a look at before or while deciding on an angel investor.

-Experience in business and/or your field *Why this is good: -Their mentorship and business advice will be more beneficial since they understand the industry

-Multiple successful launches *Why this is good: -Examine the business history of the investor and how successful they were with helping other businesses achieve success

- Require you to provide a record of how their money is spent *Why this is good: -It shows concern over how the money is spent to insure that it is allocated properly for the business and is not spent on unnecessary things *A good angel investor truly wants your business to succeed and won’t want you spending their money any kind of way.

-Use performance metrics *Why this is good: -Shows professionalism and a business mindset to make sure that things are functioning as they should be -Shows true concern for their investment and the business

-Allows the angel to monitor how well the business is doing without looking over the entrepreneur’s shoulder

-Provide oversight *Why this is good: -Shows concern for the business -Allows for others to provide their input on the business to examine ideas from all angles and the costs and benefits of ideas are weighed before actual implementation If you’re considering finding an angel investor to fund your small business start-up, remember that there are both good and bad angels so you must be careful. Make sure that you have considered the pros and cons of angel investing and research your funding options before making any decisions. If you’re quite certain that finding an angel investor is the path that you want to take remember to research the angel, set perimeters for how much involvement the angel is allowed to have, and remember that the business is still your own and will go in whatever direction you decide to take it.

Things to Remember Be Aware of -Questionable Businesses *Be sure that the money your angel is using to invest in your business is from a credible source. This is important because if an angel is using money from an illegal business to fund your company and they get caught, you may end up losing your business due to their mistake.

-Bad Angels *Every blue moon you hear of an angel that is just bad. Sometimes these angels spend all of the time and resources that they give to the entrepreneurs developing the product, but not growing the business. After all has been spent and the business crumbles to the ground, this bad angel takes the entrepreneur’s “intellectual property� to compensate for their investment. Be aware of this type of angel, because there is nothing worse than putting all of your energy into a product and then having it taken from you.

-Angels That Want Jobs *There are angels who are not just looking to invest. Some angels are retired or have extra money to use, and even though they are interested in the return on their investment, they are looking for jobs as well. Be careful because these angels may include a clause in the initial contract saying that they will have a paying position at your company.

The #1 Element for a Good Working Relationship -Working Business Contract *It is important to have a business contract so that each party knows what is expected of them. While some angels have prewritten contracts, it is important to make any modifications or changes to any time or issue that you do not agree with in the contract. Remember that you and the angel investor are agreeing to what is on the paper. If their supervision is to last a

certain amount of time, you are to submit reports every week, or they can only schedule trips to your office, document it. It is ultimately the contract that counts, because if anything goes wrong it’s the contract that will be used to settle the dispute. Protect yourself legally.

Angel 1

Angel 5

Angel 2

Angel Investor Networks Angel 1

Angel 4

Angel 3

While some angels prefer to give by themselves, Angel 5

more and more angels are joining angel networks. These

Angel 2

networks allow angels to group together by tens or even hundreds to screen business ideas, and consider ways that they can help entrepreneurs get their businesses

Angel 4

started. Listed below are some common angel networks divided by region, since some of the networks look for start-up businesses in their area. If you want more information about angel investing or on a specific angel network, click the link below the network’s name to go to their website where there will be plenty more information.

National Investor’s Circle Invests in: For-profit companies that seek to address social or environmental problems in the areas of: energy/environment, food/organics, health/wellness, media/education, and community development Keiretsu Forum Invests in: Companies in technology, consumer products, healthcare/life sciences, and real estate that usually already have $500k in investments The Tribe of Angels, Invests in: Companies involved in medical devices, IT, pharmaceuticals, energy and defense

Northeast Beacon Angels Invests in: New England companies that are prototype ready with $500k in trailing 12 month revenue in the following industries: business products & services, IT, and marketing Common Angels Invests in: Early-stage companies in the technology industry including: digital media, software, SAAS, internet, and cloud

Angel 3

Hub Angels Investment Group Invests in: Early-stage companies in the New England & Boston region in the following areas: healthcare/life sciences, IT/communications, and financial services. The company must be at least one (1) year old and have made less than $10 million. Jumpstart New Jersey Angel Network Invests in: Early-stage technology companies in the Mid-Atlantic region Launchpad Venture Group Invests in: Companies based in the Boston area with a potential market of $100 M or more that are in the technology industry including: healthcare services, biotechnology, software, and consumer products & services Maine Angels Invests in: Early-stage companies based in Maine that have a growing market for their product and a business that can expand to meet the market New York Angels Invests in: Early-stage technology and emerging growth companies in the Northeast with large target markets and a business that can grow quickly and manage the scale necessary to succeed Rochester Angel Network Invests in: Early-stage startup companies in the Rochester area that have high-growth potential (e.g., tens of millions of dollars in revenue or more) and a national or international customer base Tri-State Private Investors Network Invests in: Startup companies Vermont Investors Forum Invests in: Companies in Vermont Walnut Venture Associates Invests in: Early-stage IT and software companies in the New England area that are prototype ready with $3 M in trailing 12 month revenue

Pacific Northwest Alliance of Angels Invests in: Businesses in the Pacific Northwest that have a concept with $3M in trailing 12 month revenue in the following industries: food/drink, marketing/advertising, consumer products & services, software and more Founder’s Co-op Invests in: Companies with small (2-3 person) founding teams that are focused on software and webbased services Oregon Angel Fund Invests in: Startups and early-stage growth companies in Oregon and SW Washington in any industry that have a concept with $10M in trailing 12 month revenue Puget Sound Venture Club Invests in: Early-stage companies from the Northwest that have the potential for 10X returns in five years

West The Desert Angels Invests in: Startup or early-stage companies in any industry in the Southwest region that are prototype ready with $3M in trailing 12 month revenue New Mexico Angels Invests in: Early-stage software, information technology and life science-based ventures in New Mexico or the SW region with patented or proprietary technologies or processes. Companies should have the ability to enter or create a global market and generate $50 MM of revenue after five years Utah Angels Invests in: Utah based companies at any stage that have a strong management team and a high potential for growth

California The Angel’s Forum Invests in: Silicon Valley startups in the areas of: life sciences, technology, and consumer products that have a concept with $1M in trailing 12 month revenue Band of Angels Invests in: Seed stage high technology companies in Northern California with strong teams, proprietary technology, and big markets Pasadena Angels Invests in: Start-up ventures in a wide-variety of industries that have a scalable business design with good prospects for rapid growth and are based in the Greater Los Angeles area Sand Hill Angels Invests in: Start-up companies that are prototype ready with $500K in trailing 12 month revenue in the internet, IT, clean tech, consumer, and life sciences industries Sierra Angels Invests in: Start-up companies that have a product in development with $1M in trailing 12 month revenue that are focused on technology and life sciences in Nevada, California, or other nearby locations with the potential to generate over $50 million in annual revenues Tech Coast Angels Invests in: Companies located in Southern California in a wide range of industries including biotech, consumer products, Internet, IT, life sciences, media, software, and environmental that have a potential for high growth, a strong market position, and a sustainable advantage

South Atlanta Technology Angels Invests in: Early-stage companies that have a concept with $3M in trailing 12 month revenue in a variety of industries including: business products and services, IT, media and entertainment, healthcare services and more in Georgia that have the potential for high growth, an experienced team, a strong and protectable market position, and a sustainable advantage Central Texas Angel Network Invests in: Early-stage companies in a variety of industries with a completed or near-completed product and/or service offering in central Texas that is a Delware C-Corp and has a premoney valuation below $10M

Houston Angel Network Invests in: Early stage Texas-based technology companies that have a completed, working prototype with $3M in trailing 12 month revenue and market validation IMAF-Triad II Invests in: Start-up companies in the medical and dental fields in the Piedmont area of North Carolina, greater North Carolina and in selective areas of Virginia and South Carolina Network of Business Angels and Investors Invests in: Companies from various backgrounds that are prototype ready with $1M trailing 12 month revenue New Vantage Group Invests in: Companies in defense related technology, biotech, electronics, software, education, consumer products, and more based near Washington, DC that are interested in a standard venture investment at a pre-money valuation of $4 million or below Piedmont Angel Network Invests in: Companies located in the North Carolina Piedmont Triad region, are engaged in the fields of life science, software, & technology, and have a product in development with $10M in trailing 12 month revenue Springboard Capital Invests in: Companies in the Southeast in a wide range of industry sectors that are prototype ready with $5M in trailing 12 month revenue Triangle Accredited Capital Forum Invest in: Companies in a variety of industries with preference towards life sciences and technology companies based in North Carolina

Midwest BlueTree Allied Angels Invests in: Start-up companies with a pre-money valuation between $1,000,000-$5,000,000 in a variety of industries with their headquarters in the Pittsburgh Tri-State region (Western PA, Northern WV, or Eastern OH) Grand Angels Invests in: Early-stage companies in a variety of industries that are prototype ready with $3M in trailing 12 month revenue in West Michigan Mid-America Angels Invests in: Start-up businesses in the Kansas-Missouri Region that have the concept only with $10M in trailing 12 month revenue and the potential for rapid, scalable growth within a reasonable time frame Ohio TechAngels Invests in: Early-stage Ohio-based companies in information technology, advanced materials, and medical technology Queen City Angels Invests in: Early-stage businesses in the Cincinnati area that are prototype ready with $3M in trailing 12 month revenue RAIN Source Capital Invests in: Manufacturing & technology business with the potential to reach $10 million in sales within five years that are prototype ready with #5M in trailing 12 month revenue in Idaho, Iowa, Minnesota, Montana, North Dakota or South Dakota Wisconsin Investment Partners Invests in: Wisconsin based life science companies that have the product in development or the full product ready

Helpful Links–-The-Good-Bad-and-Very-Ugly

Guide to Angel Investors  

A special WEOP publication for entrepreneurs seeking financial support