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Angel Investors

If venture capitalists are not suitable for your business based on your sector or maturity, you may want to look for an angel investor. Angel investors are wealthy individuals who invest their own money unlike venture capitalists who invest the firm’s capital which comes from external investors (Limited Partners). For more information on angel investment, we recommend you consult the Brain’s Guide on Angel Investment.

An angel investor’s money is typically exchanged usually for convertible debt or an equity stake.

Angel investors typically:

  • Are comfortable investing a small amount of money, e.g. $50,000
  • Are able to make an investment decision quickly (e.g., in one or two meetings)
  • Are able to invest without taking a board seat
  • Do not require control of subsequent funding rounds
  • Do not impose complex terms

Banks want the same kind of answers that a venture capitalist or angel investor will ask, and look for details from the business plan on how they will be paid back and how long it will take. A lender wants to know:

  • Exactly how this business will operate and why it’s expected to make money
  • Exactly how the money will be used
  • How you plan to repay the loan and over what time frame
  • That you're willing to take a significant financial risk in the business
  • That you're responsible and can manage this business
  • Who else is involved in management or operations, and that they will also be responsible for the proper use of the money from the loan

Currently, the federal government, looking to stimulate the national economy in face of the downturn, recently has provided incentives for banks to start backing small businesses again.

As part of the stimulus, the Small Business Administration (SBA) guaranteed $16.5 billion in loans to small businesses, as part of $325 million included in the Recovery Act in February 2009. Please review the Brain’s Guide to SBA Financing for more information on SBA Financing.