Your Business Numbers Coach....Go to Your Next Level

Is an Angel Investor Right for Your Business?

As an entrepreneur, you are inherently a risk-taker. Starting and running a business is not for those who only play it safe. But like almost everything in life, risk is on a continuum. There is lots of distance between carefully weighed risk and recklessness. “Carefully weighed” risks are optimal.

Many small business owners consider taking on funding as a necessary risk to grow at their desired rate, since they need more cash than they can invest personally.  Before enough revenue starts rolling in to cover costs and produce a healthy margin, businesses need to invest in expenses like research and development, materials, staff, marketing, or operations – and most likely, a combination of those factors.

Traditional options for funding are commercial (bank) loans and government-backed loans, such as Small Business Administration (SBA) loans.  Another option is to come to an agreement with one or more angel investors.  These are private, high net worth individuals who are willing to take risks on businesses they believe will succeed.  Make no mistake though: Angel investors are in it to earn money at a higher rate than traditional investments, and they typically require equity ownership in the company and expect returns via company profits of 25% or more (such as what you see on the aptly-named TV show, Shark Tank).

Here are a few pros and cons of acquiring capital through angel investment:

Pros:

Cons:

Many angel investors and business owners develop mutually satisfying, long-term relationships.  Success depends on detailed business planning, extensive upfront communication and documentation, formalized legal agreements, and then ongoing communication and relationship management.  With solid planning and communication, using angel investment to fund your business can be an effective risk that accelerates your business growth.

Contact us if you would like us to help you determine if angel investment is right for your business.