An angel investor group is simply a group, generally of 10 and 150 wealthy individuals, that meets in order to pool knowledge and resources for the purpose of investment in start-up companies. These companies or organizations could be in the seed stage with only a concept from which to work or they can be new businesses with some revenue already.
The following are the pros and cons of angel investor groups:
Pros: Angel investor groups will normally get in the forefront with you and actually help you grow the company, which means you can end up making a lot of contacts in the industry for free. Also, the angel investor groups may be able to form a syndicate if a large amount of money is needed.
Cons: The angel investors groups are a lot more selective about the deals they make, because they can only manage so many deals at once. It’s difficult to find a professional angel investor or groups, and even if you do, they usually require more validation of your business plan than some private angels before investing.
- How you can find angel investment groups?
The first step for any entrepreneur is finding an angel investor. Even with the far-flung use of technology, the vast majority of angels prefer to invest close by, near to their home, so an entrepreneur should start by looking for angels in the area. Numerous websites contain angel investor groups categorized by location.
Entrepreneurs should look for accredited investors for legal purposes. This means that the private angel investor or the angel investor group should have a net worth of $1 million and must have made at least $200,000 each of the last two years with the reasonable expectation to do the same for the current year. In case an entrepreneur has a very little start-up experience, he should seek an angel or an angel investor group that will be active in the company. Investors providing only money are mostly less desirable than the angel investor or the angel investor groups that want to be highly involved with start-ups. Angel investor or groups are using their own money today and want to see their start-up succeed and scale heights, thus many use their network to help get deals and provide advice based on their business experience.
In the last ten years, memberships in angel investor groups have increased significantly. Angel investors join groups for several reasons. Increasing deal flow, reading business plans and performing due diligence all require significant time. Angel investor groups allow the work to be divided, providing angels with more time. Many angel investor groups have standardized processes and term sheets, which also reduces legal fees and because of the increased deal flow, investors can choose only deals in which they are interested in.
Starting your own angel investor group can be an enjoyable and rewarding way to improve your community, foster new business and potentially make a lot of money.
If any person wants to start up their own angel investor group, then they should follow the steps below:
- You need to write a mission statement. While a mission statement is important for any business, it is the core guidelines of an angel investor group. A mission statement would determine whether your angel investor group is designed to maximize profit, safely invest, foster social benefit or fund innovation. This will serve as a guide, not only for choosing the businesses in which your angel investor group will invest, but also the type of investors you will be bringing into the group.
- You need to select your investors. The average investment made by local and international angel investors in a start-up company is £272,000, which means that an angel investment group must be able to handle such large amounts of money as a standard matter. As such, each investor in your group should have disposable capital that can contribute to a collective amount well over a million dollars and pounds.
- You need to determine how decisions are to be made within the angel investor group. While returns on investments vary based upon the individual angels’ initial investments, determining how the angel investor group’s decisions should be made is an entirely different matter. You could decide that anyone who has the required capital to participate in your group’s investments should have an equal say in the group’s decisions. Or you could come up with a system of seniority or vote strength based upon the capital injected into the program.
- You need to determine how your investments will be compensated for. While your angel investor group should negotiate on a case-by-case basis, knowing how you expect your investments to be handled is a primary concern of your group’s standard policy. Some options include convertible debt, which will give you the option of seeking remuneration in the form of money or shares after a certain time, or ownership equity, with your angel investment group retaining stakes in the company’s future.
- You can advertise for investment opportunities. Choosing to advertise and listening to proposals can potentially give you a bunch of exceptional applicants. However, it can also pressure your angel investor group to take quick action. Finding your own opportunities could involve a lot of research, but may result in a company about which your members are passionate.
- Once you have found a company your angel investor group is interested in funding, begin developing a collaborative contract. The contract allows your angel investor group to decide whether or not to be hands-off or hands-on, depending upon your group philosophy.
Angel investor groups are great sources of revenue for many entrepreneurs. It may take persistence to set up an initial meeting, but the vast connections of the angels in the group could pay off tremendously. You need to remember that funding does not happen in a bat of an eye lid. It takes several months at the very least for the process to work so you need to be patient enough and do your deed whole-heartedly.