What should I consider before seeking angel investment?

I am a veteran of the internet sector and 18 months ago I established my own business. So far, I have funded operations through my own money and from friends, but now I want to bring in some private investors or angels. I am interested in getting advice from someone who has themselves gained angel funding on the best ways of selecting and dealing with this type of investor? Is money always the key factor and how much can they help you with advice?


A. Christina Domecq writes:

Having good mentors offering advice is crucial for anyone trying to get funding. Mine understand my passion, and what I look for from them is their level-headedness. I give them time and trust, which are all critical to a mutually productive mentoring relationship. We have nicely reciprocal relationships, and one of the reasons is that I listen. When you go to people for advice, they expect you to listen, and appreciate it when you do.

Investment from business angels can result in vital input for a growing business that other forms of financing don’t deliver. Angels often have a passion for your company and the industry in which it operates, and bring experience and industry knowledge to the table, which can prove invaluable.  

 

However, there are a range of issues you should consider before deciding to use a business angel. First, research and work your network to find the most relevant people. Angels will want to see how your business matches their investment criteria, and invest in people they can have a successful business relationship with.

You also need to get your pitch right, as numbers may not be the key investment criteria. For example, potential investors will need to understand what gives your business a competitive edge, what determines your unique selling point and a whole lot more beyond. They will expect you to provide all of this information under a non-disclosure agreement before they decide to invest, so make sure you are in a position to do this when approaching them.  

Once you have found your potential investors, you must be clear with yourself from the start as to what you are prepared to give as part of their investment package. For example, there are always issues surrounding information rights, board representation, shareholding dilution and exit strategy.  

Christina Domecq is the founder and chief executive of SpinVox, an innovative voice-to-screen telephony service, which has gained over $100m of investment.

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