If you’ve already approached your family, friends, and your bank for funds to help your business, and are still a bit short, then your next step is to approach business angels. These are people who have built one or more successful businesses themselves, and would like to diversify their interests elsewhere.
A given business angel might be willing to invest up to $250K, but will usually feel more comfortable sharing that risk with other angels.. So, for example, if you decided that you needed a quarter of a million dollars, an angel would probably be happier putting in half of it if another angel did the same. That doesn’t mean that he or she wouldn’t put in that amount; it only means that it probably would have to be matched by another angel who invested the same amount. And, of course, if you’ve secured some investment from your family and/or friends already, that would make them feel better because their risk would be diluted that much more.
Not all angels will limit themselves to sums as low as this, The mature oil-rich Middle Eastern countries have many very wealthy people who will invest several million dollars on their own if the project meets their standards. And that’s really the most difficult part.
Business angels often work through brokers, people who have a “stable” of angels who look to them for good investment opportunities. A friend of mine is one such broker, and he tells me that the problem is not a lack of money, but rather it’s a lack of good projects.
Business angels will want a concise summary of your business. It may not need to be a formally written business plan. That will depend entirely on what the investor wants. A well written document could be as short as one page. You’ll need to check with the broker to find out what is preferred.
Here are some items that you’ll want to include in your summary: what you’re selling, a good estimate of how much of the market you could get over what period of time, and your anticipated profit and loss for the first three years. They might want a percentage of your company and/or a seat on your board, if you have one. This is not because they want to control your company, but instead because they want to protect their investment. But, what ever else you do, hold onto at least 51% of your business.