Angel funding and venture capital
Angels give wings to entrepreneurs. They provide seed money to business startups—to the tune of tens of thousands to a million dollars or more—in exchange for convertible debt or ownership equity. Some angel investors come together to form angel groups or angel networks to share research and pool investment dollars.
Venture capitalists (or VCs), on the other hand, usually make their capital investments later in the business cycle. They exchange their investment and their expertise for a significant portion of the company’s ownership and significant control over company decisions.
Before you approach an angel investor, angel network, or VC firm, ask yourself and your partners these questions:
- Am I willing to give up some amount of ownership and control of my company?
- Can I demonstrate that my company is likely to realize significant revenues and earnings in the next 3-7 years?
- Can I demonstrate that my company will produce a significant return for investors?
- Am I willing to take the advice from investors and accept board of director decisions I may not always agree with?
- Do I have an exit plan for the company that may mean I’m not involved in 3-7 years?
You’ll need to follow those answers with a solid business plan and an executive summary that includes:
- Financial overview for at least three years out
- Sales and marketing plans
- Three-to-five year goals and your action steps to get there
- Exit strategy