When it comes to seeking an angel investor, many people have the wrong idea about exactly what it is that this type of private equity investor does. Somewhere along the way it became a common misunderstanding that angel investors were quicker to land than business loans in financial institutions and that when the loan was repaid, all was said and done. This isn’t the case at all and although an angel investor can be just that, an angel in disguise, there are a few things you should know before summarily seeking this type of investment in your business.
Angel Investors Are Not the Same as Loan Underwriters
Here is the major difference between an angel investor and a loan underwriter. When you take out a loan of any kind, you will pay back the principal plus an agreed upon amount of interest and/or finance charges. This interest can be fixed or variable and depending on your credit, the interest rates can be quite high. Many people have gone into bankruptcy due to the inability to keep up with business loans but an angel investor may or may not exactly want their investment repaid in the traditional way. Some are private equity investors who will take a percentage of shares in the business in return for their investment. Others do want to be repaid and others still may want both. There is nothing set in stone as to how an angel investor wants to do business.
A Real Boon for Hard to Finance Businesses
There are some businesses that, by their very nature, are quite difficult to get financing for. One really good example in recent times would be the medical marijuana industry. Although medical marijuana is legal in some states, in others medical patients can purchase cannabis at a local dispensary but not grow themselves. Others yet allow both growing and the use of but the industry is still quite new even where allowed. As a result it is often difficult to find financing or investments in a medical marijuana dispensary so business angels, marijuana private equity investors, come up with funding to get the dispensary off the ground or to keep it going in lean times.
Why Angel Investors / Business Angels Are Hard to Come By
Because of the amount of risk an angel investor may be taking on, they aren’t as easy to come by as you might think. Even though they are often offered a share in the business, that may not be enough to entice them to sink money into your business. If you are looking for a private equity investor it is imperative that you have everything in order as you would for a conventional loan application or investment packet but also a more detailed business plan. If you want to ‘catch’ an angel, remember that you need to show on paper how they will make their money back plus a tidy little profit.
Somewhere along the line, the term ‘angel’ led to the misunderstanding that these investors were also philanthropists. Whilst some may be just that, the typical private equity investor is simply looking for a good return on his or her money. Show them how they can make a huge profit and you have just learned how to catch an angel.