These individual VC investors seem like they're from heaven, but be prepared to give up a chunk of your company for funding.
Definition or Explanation: Working with angel investors means acquiring venture capital from individual investors. These individuals look for companies that exhibit high-growth prospects, have a synergy with their own business or compete in an industry in which they have succeeded.
Appropriate For: Early-stage companies with no revenues or established companies with sales and earnings. Companies seeking equity capital from angel investors must welcome the outside ownership and perhaps be willing to relinquish some control. To successfully accommodate angel investors, a company must also be able to provide an "exit" to these investors in the form of an eventual public offering or buyout from a larger firm.
Supply: The supply of angel investors is large within a 150-mile radius of metropolitan areas. The more technology driven an area's economy, the more abundant these investors are.
Best Use: Runs the gamut, from companies developing a product to those with an established product or service for which they need additional funding to execute a marketing program. Also, angel investors are appropriate for companies that have increasing product or service sales and need additional capital to bridge the gap between the sale and the receipt of funds from the customer.
Cost: Expensive. Capital from angel investors is likely to cost no less than 10 percent of a company's equity and, for early-stage companies, perhaps more than 50 percent. In addition, many angel investors charge a management fee in the form of a monthly retainer.
Ease of Acquisition: Angels are easy to find but sometimes difficult to negotiate with because they usually do not invest in concert and may demand different terms.
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