When you are formulating your startup business plan and finally reach the point where you have to figure out where the capital is going to come from, it can be a tricky question to deal with. When you go the FFF route (Friends, Family and Fools) you may be able to raise a couple hundred thousand dollars – which could fall short of your needs. If that is the case, you need outside investment, but what kind of outside investment?
Banks can be difficult to deal with and most venture capitalists have little or no interest in anything under a couple of million dollars. The gap between FFF and venture capitalists is filled by angels – angel investors to be precise. Angel investors are typically going to put up their own capital in exchange for some form of ownership stake in your venture or convertible debt. They typically remain hands off when it comes to operations.
Angel investors are going to be very interested in seeing a solid business plan that demonstrates an ROI of at least 10x over five years or possibly even 20x-30x over seven years. They are going to expect to see an explicitly spelled out exit strategy which painstakingly spells out scenarios fore IPO’s or acquisitions by another entity.
An angel investor takes a tremendous risk when they invest, and as such they expect a significantly higher ROI than most other investors in a shorter time span. As such, it pays to at the least strongly consider using a professionally prepared business plan before contacting any prospective angel investors.