How To Raise Angel Capital
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As with every business venture, it is crucial to devote ample time and budget in finding the right angel investor. Once a prospective angel investor or angel groups are identified, the entrepreneur must then go through several steps to obtain their desired capital.

Write a funding request

In order to raise any kind of capital for your business, a funding request must be made. This is a letter that is sent to an angel investor/group describing your need for funding and requesting a meeting to discuss your proposal. A carefully planned request can be the difference between having an investor finance your venture or being completely disregarded. Some prominent mistakes that many entrepreneurs make when writing a funding request are spelling and grammatical errors, providing too much or too little information that makes their request difficult to follow, and creating too much hype about their business’ products and services. This budget proposal can range anywhere from a few thousand to a few hundred thousand dollars. A well-written, clear, and concise funding request should be submitted for initial review, highlighting some important components:

Headline- the product or service that is being sold and the amount that you are seeking to raise.

Full description- includes any relevant information that gives the facts about yourself and your company, as well as what you are trying to accomplish.

Market opportunity- your targeted market/consumer base and why your product would be successful.

Requirements- an explanation of the requirements needed to run your business.

High points- mention some important details that may significantly increase the value of your deal.

In the event that you initiate contact, and an angel shows interest in your investment, it is critical to present them with a well-detailed business plan in order to successfully raise angel capital.

The importance of a business plan

According to the United States’ Small Business Administration (SBA), 90% of all small businesses fail within the first two years of operation. Despite these grim statistics, the majorities of these companies either do not know how to properly plan their businesses, are not willing to take the time out to devise a solid business plan, or do not even know how to maintain their business plan. Even though it is possible to succeed in a business without an effective plan, it is always wise to create and follow one for starting any business, so that components such as daily operations, management and employees, finances and returns are organized and focused to promote business growth.

An outline of the SBA’s suggested business plan is as follows:

Executive summary- This part of the business plan is an overview of your company and includes information such as the history of the business, its mission, objectives, location, products and services sold, targeted market, value proposition, projected growth, names of people who have a stake in the company, risks and opportunities, and capital requirements. 

Market analysis- This includes industry-specific market research, supply and demand of products sold, market share percentages, etc.

Company description- This refers to the nature of the business, success factors, profitability, etc., and how these components contribute to the overall business.

Organization and management- Ownership structure, the names of the executives and management team and their experience, expertise and education level, salaries and benefits should be mentioned in this section.

Marketing and sales strategies- This is the effective marketing and advertising approach on promoting the business and selling its products and services.

Products and services- This refers to the competitive advantage of your products and services, their uniqueness, the need for these products and services, their pricings, legal issues, etc.

Prepare a proposed financial package for your angel

The entrepreneur is strongly encouraged to do research and to prepare information for prospective angel investors about different financial packages that can be offered. Most angels prefer equity, where they have a desired percentage in the company in return for investing in the business and a guaranteed exit strategy (such as a mandatory buy-out). These financial arrangements should be tailored to fit the angel’s needs. Any proposals should be openly made and agreed upon by both parties.

Before signing any agreement, the entrepreneur must make sure that:

  • The angel investor is “accredited,” meaning that they are experienced in your industry and recognized as an honest investor.
  • They understand their angel investors’ motivation to succeed. Their investment is very risky and an experienced angel investor will offer more than just their money. They enjoy the challenges of start-ups and will advise, mentor, and actively work behind-the-scenes to ensure day-to-day operations and overall company profit.
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