Searching for angel investors
Here is what every aspiring business-owner should look for in early-stage backers.
SAN FRANCISCO (Business 2.0 Magazine) - The right time to raise the first round of money varies from startup to startup. Some companies -- mostly software or Web-based ventures -- need little cash to get off the ground.
But if you're building a physical product, you'll be looking for funding earlier in the game. That's where angel investors come in: Unlike venture capitalists, who usually wait until a company has a working product, they specialize in early-stage startups.
The main thing to understand is that not all money is the same. Friends and family are a natural place to start, but keep their investments modest to avoid throwing your relationships off balance.
Never take investments from anyone who is not a so-called accredited investor -- an individual with a net worth of at least $1 million. Remember, it's not just money you want; you also want brainpower, connections, and experience.
"You always want at least one heavy hitter in an angel round," says veteran Silicon Valley angel Jeff Clavier. Instead of treating their investment as a loan, some angels may expect a stake in your company, so set aside 10 to 15 percent of your equity to allocate among early-stage investors.
Get used to giving away ownership: In a venture-funded startup, the original founders may ultimately retain as little as 5 to 10 percent of the original equity.