They are non- institutional, they are wealthy individuals who invest a lot of capital into a startup and motivated in the technology, business model and market as part of his or her return on investment.
The Checkbook Angel: A check book angel is passive in their investment and will invest in the area of $5000-$25000.00
Capital Active Angels: A Capital angel is active and usually is seeking a strategic role as, a mentor or member of the board
Super Angels: While Super angels are also active they invest anywhere in the range of half a million to $2M
Angel investors provide necessary seed funding to startups and raise capital for startups anywhere in the range of $20b annually in the U.S. There a number of different angel investor categories.
The Enthusiast – They like to do the deals, successful and established in their business and professional careers
The Professional – These folks are looking for a job and looking for a company to invest in and work for at the same time
The Micromanagers – The micromanager are business savvy with a strong business acumen they want a board seat and bring with a wealth of knowledge. It can become a problem when the micromanager does not agree with the business owners on business strategies or future business endeavors
The Corporate – These are people who have come out of fortune 500 companies as executives or members of senior management, and looking to invest in a startup that can turnaround profit
The Entrepreneur – People who have started their own companies and looking to invest in a new startup, they are willing to take risks, pride themselves on the ability to start a new venture and their ability to help a new startup grow and sell at the appropriate time.
Funding Stages:
Startup Stage – In these stages fund comes from personal investments, families or angels. First round of cash infusion is less than $1million.The business has no history of customers or generated revenues.
Seed Stage –This is funding towards R&D, customers are using the product or service but there is no cash flow. The funding range is usually under $5million.
Expansion/Growth Stage – This category is for companies that are up and running with a tested product or service. The business is seeking market expansion, product development and additional working and operational funds.
Buy out Stage – Current shareholders sell some portion of their current shares. This can involve acquisitions, change of ownership, exit strategies. The funds can be used for expansion or consolidation of the business.
Below are some terms used in startup funding:
BURN RATE: Negative cash flow on a monthly basis
SWEAT EQUITY: Value in a business based on hard work and know how rather than capital invested
SEED CAPITAL: Capital invested in the early stages of a business
DOWN ROUND: Stocks purchased from a company at a valuation lower than previous valuation by earlier investors
PRE-MONEY VALUATION: The value placed on your company by investors before you receive the money
PRO-FORMA: Forecasted financials of a business based on the projections of the performance of the business
DEBT SECURITY: This is money owed to another party, an obligation to pay back capital that has been borrowed. It is a binding document with terms of agreement attached to the debt.
BOARD OF DIRECTORS - These are elected or appointed individuals responsible for making major decisions and can take action with regards to issues such as executive remuneration, hiring and firing of executives etc.
CASH FLOW - Cash generated less cash expenses. It is the difference between the cash you started with and the cash you are left with at the end of your accounting period. Positive cash flow means the cash coming in exceeds the cash going out, otherwise it is negative.
TERM SHEET - Is an invest document outlining the terms of agreement; it includes certain items like the amount to be raised, pre-money valuation etc.
Raising capital from Angels is not an easy task. The whole process of raising capital can disrupt entrepreneurs from doing the actual work of building their service or product and getting in contact with customers. Entrepreneurs should postpone the idea of raising funds for as long as possible, so that they can build value and get a higher valuation for their company .Angel investment is a great way to get raise capital.
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