Angel Investors: Venture Capital Meets Small Business

by Matthew Toren

2 min read

Every small business faces a moment of critical mass when its success relies on expansion, which usually requires capital. You can try for a business loan, self-finance or set up a crowdfunding campaign, but another great source of capital to consider is angel investors.

Angel investors lent more than $24.8 billion to start-ups in 2013: up 8.3 percent over the previous year.

According to The University of New Hampshire’s Center for Venture Research, there are more than 67,000 start-ups and small businesses that receive funding annually. The average small business capital raised per business is around $320,000 and coming from more than 298,000 individual angel investors in North America. The average amount provided by each individual angel investor was about $83,000.

What would prompt an angel investor to give you the start-up capital you need? They’re all about the numbers. The Angel Resource Institute says, the average rate of return for all angel investments is 27 percent, though the individual investment rate of return can fluctuate dramatically. This means investing in your business can be a good financial decision and profitable return for them.

If you’re thinking angel investors are only for tech company start-ups in San Francisco, think again! The market share for angel investment is quite diverse. While the largest sector of market share is software at 23 percent in 2012, there was over 14 percent market share in the health-care industry, followed closely by the biotech field at 11 percent, trailed by the energy and retail markets making up the remaining angel investment at 7 and 12 percent respectively.

What if you’re not a start-up business, but an established small business that just needs capital for expansion, renovation or any other course-of-business liquidity infusion? Angel investors put money into small businesses in a variety of growth stages. In fact, only about 39 percent of companies that received angel investments are in the seed or start-up phase, which means more than 60 percent are already-operating businesses needing investment capital from an angel investor. Don’t discount your access to funds simply because of the stage or established history of your business.

If you’re serious about acquiring angel investment funds to expand your business, start by coming up with a great business plan. It doesn’t have to be as thick as the phone book, but it should be thorough. Angel investors are typically business savvy so they’ll want to see the operations of what you’re doing. They’ll also want an executive summary.

This includes financial information, so now is the time to dig into your bookkeeping program or software to evaluate how the company is doing. The findings in a current and historic balance sheet will give you a clue on how much of an uphill battle you will have attracting an investor. On average, angel investors polled say they spend roughly 50 hours researching a business before investing.

You can also check out angel investor resource sites like the Angel Capital Education Foundation and the Angel Resource Institute to help answer questions and connect you with investors in your field. These are great resources to start the discussion and connect.

Related Articles

What’s Changed in the New QuickBooks

The new QuickBooks Online bookkeeping software has gone through quite a few changes. As…

Read more

Common Sources for Business Loans

Sometimes growing a small business requires borrowing money. Fortunately, you have numerous…

Read more

Checklist Before Leaving Your Job to Become Your Own Boss

So you’re thinking of quitting your job to become your own boss. In other…

Read more