If you’re a sole proprietor struggling to raise capital for your new business, you may benefit from looking for an angel investor. An angel investor can help your business solve its cash flow problems while you are trying to find footing in the market.
While an angel investor may seem like an ideal solution to your funding problems, the reality is more nuanced than that. Finding one (or more) suitable for your business can take a lot of time and effort, especially for sole proprietors who are seeking out opportunities in a competitive market.
To help you better navigate your financing path, it’s important to learn what angel investors are, how to know if they’re right for your business, and the best ways to find them.
- Angel investors typically are individuals with high net worth who are willing to invest in startups.
- Unlike venture capitalists, angel investors use their own money to fund businesses and invest in the early stages of a startup.
- An elevator pitch isn’t enough; you need to show your industry savvy and sell yourself to lure investors.
- The key ways to find investors are to attend networking events, draw on your own social network, and use online resources.
What Is an Angel Investor?
An angel investor is a high-net-worth individual willing to invest in a startup, often because they are personally familiar with the startup’s industry, see high growth potential, and value its business plan. In an email interview with The Balance, Charlotte Spokes, who raised approximately $122,000 for her dating platform Hellosolo, said that angel investors can offer money, mentorship, and access to resources in exchange for equity. “This ‘value-add’ can offer significant support to the startup and help fast-track its growth,” she said.
What Are Accredited Investors?
Angel investors who deal in more intricate transactions and certain securities offerings are known as “accredited investors,” a term used by the U.S. Securities and Exchange Commission (SEC) under Regulation D. One type of accredited investor as defined by the SEC is an individual who has earned more than $200,000 in the last two years or has a net worth of over $1 million, and is “financially sophisticated” enough to sustain the risk of loss.
Accredited investors may be more equipped than other investors to help you navigate the risks of the market based on their experience and SEC-designated status.
Angel Investors vs. Venture Capitalists
While angel investors and venture capitalists (VCs) both have the same goal of investing money into businesses, there are some clear distinctions between the two, some of which are listed below.
|Angel Investors||Venture Capitalists|
|Typically invest in early stage startups||Typically invest larger amounts in more developed businesses that can achieve rapid growth|
|Are high-net-worth individuals who provide a large cash infusion of their own money to fund businesses||Do not use their own money; instead, use funds pooled from investment companies, large corporations, and pension funds|
|Offer mentorship but tend to play a smaller role in shaping the company||Ask for bigger equity and play a more active role in developing the business|
Sometimes your business may need a combination of angel investors and VCs to receive sufficient funding.
Before You Search for an Angel Investor
If you are a sole proprietor wondering if your business needs an angel investor and how to find one, here are some things to keep in mind.
Can You Truly Sell Your Business Idea?
A strong elevator pitch can give potential angel investors a short, snappy overview of your business and be enough to lure them in. But being able to show your industry savvy and sell yourself might be the keys to sealing the deal.
“Investors want to make sure founders know their business concept and market trends inside out and can articulate it well,” Marc Snyderman, owner and president of Snyderman Law Group, told The Balance via email. Having attracted angel investors and invested in startups himself, Snyderman said, “Investors are always investing in the people behind the concept, not just the concept itself.”
Is an Angel Investor Right for You?
If you are having trouble managing cash flow for your day-to-day operations and struggling to grow your business at the desired pace, it may be a good time to consider getting an angel investor.
“When it's just you running a company, you have only yourself to answer to, but when you take on investors, you are legally answerable to them,” said Trey Taylor, founder of business coaching company Trinity Blue, in an email to The Balance. “This includes working to make sure the business plans you pursue are reasonably calculated to increase the enterprise value of the company.”
Getting an angel investor on board means you will likely have to give up some equity. If you are not ready for that, it’s probably not a good time to take this funding route.
However, if you believe an angel investor is right for you and your business, here’s how you can start your search.
Attend Networking Events
Attending in-person networking events can serve as an excellent opportunity to interact with potential investors and get an idea of what they are interested in. One of the best ways to meet angel investors is to attend events organized by local business and trade organizations, like the U.S. Chamber of Commerce. Trade shows can also provide a great avenue for interacting with high-net-worth individuals and established businesses in your target industry.
However, just showing up at these networking events isn’t enough; you must be prepared to pitch your company and get angel investors interested. This is where having your elevator pitch ready can be beneficial.
Practice talking about your business among your family members and friends to help you tackle business-related questions that angel investors could ask during your meeting.
Draw On Your Existing Network
As a sole proprietor, you don’t necessarily have to rely on large networking events to find angel investors. Starting within your existing social circle is often easier, as people in your current network are more likely to give you more relevant, personalized advice. They can also connect you with other experts who can guide you in the right direction.
If you have friends in the finance industry, reach out to them as they are more likely to have colleagues or acquaintances in the investing sector. You can also contact local banks and loan providers that may have wealthy customers looking for new investment ideas. Finding existing connections like these can help you cut through the startup competition and gain investors’ attention more easily.
Having a mutual connection on LinkedIn can also be a helpful, quick way to find a suitable angel investor.
Use Online Resources
If you’d rather not attend in-person events, several virtual resources can connect you with interested angel investors. Here are a few options:
- AngelList: AngelList provides a massive library of resources for startups and angel investors. You can find investors to connect with as well as benefit from an ample amount of free advice available on its startup blog.
- SeedInvest: SeedInvest is an equity crowdfunding platform that connects startups with angel investors. Using the platform, startups pitch their businesses and investors choose to fund what best suits their interests.
- Investor Hunt: This easy-to-navigate platform is great for sole proprietors looking to find a suitable angel investor quickly. You can instantly search through 40,000+ investors to contact and impress with your elevator pitch.