What does it take to get a business off the ground?
For some entrepreneurs, the answer is angel investors.
Angels are private investors who want to help entrepreneurs turn their ideas into reality. And they are a critical component of thriving entrepreneurial ecosystems, providing the necessary financing to help founders get moving.
What Are Angel Investors?
Angel investors aren’t just another word for venture capitalists. There’s a clear distinction between the two, said Zach Zacharakis, professor of entrepreneurship at Babson College. “Angels invest their own money, and venture capitalists invest other people’s money.”
To elaborate, angel investors are high-net-worth individuals who invest directly into promising ventures in return for equity. “Angel funding typically comes from private citizens investing their own money,” said former angel investor Kevin Colleran ’03, founder and managing director of Slow Ventures. “It’s often the first money a founder ever takes.”
Angel investors can be individuals or groups formed through pools and crowdfunding. Many are entrepreneurs themselves—55 percent were previously a founder or CEO of their own startup, according to a 2016 report from Harvard Business School. And yes, they’re tapping into their own funds when they invest.
Like VCs, angel investors frequently offer value beyond the investment. “The money is one thing, but you’re also getting their expertise,” said Zacharakis. “A typical angel wants to support a bright young entrepreneur as an investor and a mentor. They offer lots of different expertise and advice.”
How Do Entrepreneurs Connect with Angel Investors?
There are plenty of opportunities to connect with angel investors—it comes down to knowing where to look, and whether or not you’re ready for funding.
For some, it starts with friends and family. “Unless an angel thinks you’re stellar, if your venture is still just an idea, then you’re in the friends-and-family-pool stage,” said Zacharakis. “When your venture is just a twinkle in your eye, your investments will come from people who love you.”
Once you’re beyond that stage, however, other angel investment options arise. The Harvard Business School report found that while 52 percent of angels identify deals through friends and associates, another 58 percent do so through direct contact with entrepreneurs. Another 17 percent used crowdfunding platforms (think Kickstarter).
Well-known venture accelerators are another avenue for entrepreneurs to connect with angel investors.
“Everybody is looking for some sort of certification that an entrepreneur is doing something good,” said Zacharakis. “High-profile accelerators offer a sense of vetting.”
“If you get accepted into Y Combinator, the investors in the room know you’re credible,” said Colleran. “At other accelerator demo days, it might be the beginning of my journey as an investor. I’ll need to meet the founder, spend time learning about their career and experience.”
Sometimes all you have to do is look within your own network. If you’re a member of the Babson College community, you’ve got a once-in-a-lifetime opportunity at your fingertips: the chance for an angel investment from Indian Angel Network (IAN), India’s first and the world’s largest business angel network with close to 500 members around the world.
This December, Babson students, alumni, faculty, staff, and parents will compete in the IAN Global Startup Competition. Presented by the Arthur M. Blank Center for Entrepreneurship, the competition gives entrepreneurs the opportunity to pitch for a $250,000 equity investment from IAN. The virtual pitch competition is industry and geography agnostic, and is one of many opportunities Babson students have to connect with angels.
Advice for Entrepreneurs Seeking Angel Investments
If you’re ready to start pursuing angel funds, Colleran recommends vetting angels as you would any business partner. “Just because someone wants to give you money, doesn’t mean you should take it,” he advised.
Ask the right questions: What level of involvement are you looking for? Is this person motivated by investment opportunity or obligation? Clarifying these questions from the beginning will ultimately help down the road, recommended Colleran. “There’s no right or wrong or good or bad, but it’s important to align on expectations.”
Make sure your business is ready for funding, too. “The reality is angels are investing in the opportunity first,” said Zacharakis. “They have to verify the entrepreneur can execute.”