One of the biggest challenges for any business venture is raising capital. Pretty much everything always ends with that question, “How can I get the money?” And while there are a good number of ways out there that you can choose, one way that always gathers some level of attention is angel investing.
Angel investors are investors that specialize particularly in offering financial assistance to startup companies and owners of small businesses that need to get off the ground and running. What makes angel investors different from standard investments is that they are more likely to give you funding compared to banks and don’t require you to pay back the money given.
But is that all? Below we break down the pros and cons of going with an angel investor so you can decide if they’re worth pursuing your next startup idea.
Pro #1. They’re More Likely To Say Yes
If you’ve tried to get investment funding before, you know that there are a lot of hoops you have to jump through. Angel investors skip a lot of those hoops and pretty much just believe in you. I’m not going to say that they’ll jump in blind and sign off on whatever you’re doing, but I will say that if you’ve got a good business plan and everything is on the up and up potential-wise, you can reasonably be sure you’ll get some investment money.
Pro #2. They Don’t Expect To Be Paid Back
One of the great things about angel investors is that they only expect an ROI as opposed to an ROI plus their initial investment. Think of it as a reprieve from debt. You don’t need to pay back the loan – only the interest. And since the interest is generally nowhere near as intense as the principle, this can be a whole burden taken off your shoulders.
Pro #3. They Provide Real Guidance
A huge benefit to angel investors is the fact that they have a huge wealth of information that they have and have an interest in sharing with you. Keep in mind that they want you to succeed. That generally means making sure you have as good a set of odds as possible so that you do succeed.
Cons #1. They Have Higher Expectations
One of the big challenges that come with using an angel investor is that, since they’ve greenlit you the money needed, they expect you to start making them a profit. This is part of the reasons some people have less favorable things to say about angel investors since it isn’t out of the norm to have an investor expecting over 10xs their initial investment between 5 and 7 years. This can create some serious pressure so it’s worth it to see if you can expand that rapidly within that amount of time.
Con #2. It’s Not Free
Just because they don’t expect you to pay the money back doesn’t mean they don’t expect to be paid. While exact rates vary from investor to investor, generally they’re going to want to make their money back in stock and equity in the business. Depending on how much you want them to invest, they can want upwards of 45% or more of the company. Just remember that 10% of a billion-dollar company is worth more than 100% of a ten-million-dollar company.
Con #3. Expect An Active Investor
If you’re expecting someone that’s going to be hands-off, you’re going to be a bit disappointed. The reality is that, if an investor shows interest in your business, that’s because they see what you have as valuable. As such, you can expect a very active role so that they can be sure they’re going to recoup their investment. If, on the off-chance, they give you more control over your business, expect a lot of phone calls where you’re explaining your decisions. Again, you’re an unknown variable that they’ve invested in. Just because they’re angels doesn’t mean they’re stupid.
While there are pros and cons of working with an angel investor, ultimately it depends on what your business is and how confident you are in it. If you’re interested in learning more about different quality investors, be sure to visit Macdonald Ventures (macdonald.ventures) There, they have several trained experts that can go into even more detail on the process for speaking with an angel investor as well as what you can expect from them.