Starting a business can be an exciting adventure. There is no feeling quite like taking a thought and watching it grow from an idea into a reality that can not only make you money but provide value to others. But if you’re going to start a business, you’re going to need money, and one great way to raise funds is through the help of angel investors.
What Is an Angel Investor?
An angel investor is someone who provides funding in the initial phase of your startup to help you get going. This is often in exchange for equity and at times it can be provided for convertible debt, depending on the terms and conditions both sides agree upon. When angel investors invest in a startup, they provide the money to get you going and can be helpful when your business idea may require much more capital than you can either provide or acquire through alternative means.
Finding Angel Investors for Your Business in Texas
When the time is right to find an angel investor for your business, there are plenty of options. If you own a business in Texas, you are part of one of the most robust economies in the United States. The Lone Star State also ranks second when it comes to millionaires, and offers favorable tax incentives to help attract businesses and investments. Here are some of the best methods you can use to find an angel investor for your small business:
- Use the Internet. There are many websites available that can help you find angel investors and vice versa. AngelList, SeedInvest, and Investor Hunt, just to name a few.
- Networking. While it may not be as flashy as using an online service in the 21st century, it is a tried and true method. You are going to want to forge relationships within your industry and especially with anyone who is becoming a co-owner in your organization.
- Talk to your inner circle. Mixing friends and family with business can be difficult, but it can also be a great way to raise capital and take an adventure in the process. If you are creating something you believe in, who better to work with than those you already have relationships with and trust?
- Search through alumni and localized angel investor networks. Texas has some of the best angel investment networks in the country. It doesn’t matter which school you did or didn’t attend nor does your industry. There’s likely a local group of investors looking for a great opportunity that fits whatever background you present. Check out these local networks for finding angel investors in Texas.
When innovation meets investment, magic can happen. Use the resources available to you to raise sufficient capital and bring your vision into the real world through angel investors.
How To Find Angel Investors on LinkedIn
Another great way to find angel investors is through social media, but not all platforms are the same. It can be very easy to get scammed online and social media is no exception. You should always exercise caution, however, if you are going to go this route, LinkedIn is going to be your best route.
LinkedIn is a social media platform built on professionalism. That isn’t to say there aren’t any scams, but here is where you will find people looking to make connections and extend their networks. You can also check to see how they are connected to others in your community or industry and what they can bring to the table through their experience.
Thankfully, it is very easy to connect with investors on the platform, and the social site has even set up a step-by-step way to do so. Here is how to find investors on LinkedIn and how to engage with them:
- Create a strong profile that is professional and attractive to potential angel investors.
- Type (your industry) in the search bar while selecting 2nd or 3rd connections and United States, Canada, or both.
- From here, select all filters and type in “capital”, “investor”, “venture”, or “holdings” in the “Company” filter. Note: angel investors are more likely to use “investor” while venture capitalists will likely use the other terms.
- Reach out to them and start building your relationship.
- Once the relationship is established, take your shot, send an offer, but be patient. You want to genuinely build a connection first. Don’t forget to follow up afterward, in a professional manner, if the timing isn’t right the first time.
Always do your due diligence, but as the times change, so too do the way we communicate. LinkedIn is a viable option to meet angel investors and get your project going.
Angel Investors Vs. Venture Capitalists
The biggest difference between an angel investor and a venture capitalist is where the money is coming from. When an angel investor provides your company with funding, they are doing it out of their own pocket. Venture capitalists can provide funding but are firms rather than individuals or an individual acting on behalf of a firm, using other peoples’ money.
Both are going to provide the capital in exchange for equity, but venture capitalists often look for higher ownership percentages. You’ll also note that because angel investors are paying for the investment themselves, it’s personal and they are more likely to be more hands-on in the business. Angel investors may also be more long-term and remain an owner in your company for a longer-term, while venture capitalists often fund and then exit once a proper return has been achieved.
Are Angel Investors Worth It?
There’s no one answer to this question because there are many factors to consider. This isn’t a cop-out, but you’re going to find many success stories featuring angel investors that came in and helped companies thrive such as Tide, Venmo, and Uber. It all comes down to your company and the angel investor in play to invest in your small business. Here are a few considerations that you should take when determining if an angel investor is right for your brand:
- Understand that there is going to be a natural give and take. Your decisions now have one more person to go through and you’ll need to communicate these actions.
- Your returns will naturally diminish as you are exchanging ownership for funding.
- Angel investors may not be the expert you are in your industry. This means the advice they give may not always be the best move and can cause friction within your organization.
- Don’t rush the process. Establish relationships with prospective angel investors as they are going to be not only a part of your organization but a co-owner. Angel investors are worth it for many, but it’s important to be sure that both parties have matching goals and synergies.
Funding is a great thing because businesses need money to survive. The best course of action is to find an angel investor that can provide capital but also someone that works well with the way your business is set up to operate.
What Angel Investors Look for in a Startup
Understanding how to create a startup when trying to attract angel investors can go a long way. The right angel investor can elevate your company from the jump and provide you with what you need to overcome early challenges. Here are some of the key elements angel investors look for in a startup:
- A business plan. You’re going to want to present much more than just an idea and a vision. Investors want to know how you are going to get it done. Who is your target market? Where will your company be in 3/5/10 years? Financial plans, supply chain information, exit strategies, etc. If you are going to attract an angel investor, you’re going to need an attractive plan to do so.
- Values that align with their goals. This can come in many different forms, but if you aren’t providing value to your angel investors, then why are they investing in you? Angel investors are looking to find companies that align with their values and in doing so, your company will be a viable option for investing.
- A return on their investment. Money is the name of the game and an angel investor is going to want to understand your plan for providing them with a return on their investment. Investment comes with risk and the idea is to reward the risk when things go well. Showcase the monetary value investing in your small business will provide over time.
- The people managing your business. Having a strong management team cannot be overstated. Not only will the name and position matter, but so will their track record and daily habits. You are more likely to find intrigue with angel investors who are looking at a company with a strong management team filled with experience and willing to get their hands dirty than a team lacking such qualities.
- Personal commitment from founders. Similar to your management team, your angel investors are going to want to see that you have the knowledge, passion, and grit to take care of the business and its day-to-day operations.
- What your company has accomplished up to this point. If you aren’t hitting the grind and performing positive actions before you receive their funding, why would anyone gift you with more capital based only on hope? Angel investors want to know what you’ve been up to.
- How their money will be used. If you are going to ask for funding, you are going to need a solid idea as to where it is going to go to help your business grow. Be prepared to answer questions about where the investment is going to be applied and why it is necessary to take your company to the next level.
- The other people investing in your company. Money attracts money and if your company is receiving funding from others who believe in your project or carry a big name, it’ll be easier to secure more money in the process. If you are just getting started this can be difficult, however, angel investors will also want to look at the money you and other partners are putting up to see how much you believe in your vision.
Angel investors are looking to invest in companies that have their acts together. The things angel investors are looking for in startups are sound business practices and a team that is ready to work hard to achieve the company’s goals. But it’s much more than just talking the talk. You’re going to have to prove that you can walk the walk and make the journey come to life for everyone to attract the right investors.
Can Angel Investors Sue?
Yes, an angel investor can sue you and your company for many different issues, but this can easily be avoided in most cases:
- Always draw up a contract that stipulates the terms of the investment and the responsibilities of both parties.
- Stay in communication with your angel investors and provide details about business operations and spending habits.
- Never take advantage of your funding and act ethically and in good faith when operating the business and spending money.
By deploying ethical business practices and communicating with your angel investors, you can often avoid legal issues and work towards common goals together.
Secure Your Angel Investing Funding and Protect It in Texas
Getting the funding you need to start your business is a great start, but it is also important to protect your finances once they are acquired. Small businesses have plenty going against them. Beyond having to market themselves, work out the everyday processes, and work hard to turn a profit, there are outside forces that can cause harm to your business before you really get started. Business insurance is an important component of any company because your policy protects you from perils that can potentially take you down.
The iconic quote from Mike Tyson rings true in business, “Everybody has a plan until they get punched in the mouth.”
What happens to your business in its early stages when it can’t fulfill an order due to a major business interruption? Can your business survive a costly lawsuit or data breach? Burglaries affect businesses every day. Are you prepared to overcome such loss by paying for it on your own? Having the right business insurance policies can help you protect against these perils and much more.
Businesses small and large play such a huge part in what make Texas great, which is why we here at Freedom Insurance Group take protecting them so seriously. Your small business has big ramifications in your life as well as that of your employees, customers, investors, and the community at large. The last thing any business owner wants to do is to secure the funding necessary to start their dreams and be forced to shut down due to something out of their control. Luckily, we can help you safeguard against many of these issues.
Through our partnerships with over 25 top-rated insurance carriers in our insurance center, our agents have established relationships and can provide you with the best possible coverage at the lowest price possible. We help business owners save by building a personalized coverage plan for their business that keeps you protected without overpaying.
Every industry is different and so too are the protection needs different for each company. Our team understands and helps you through the process with stellar customer service and great savings. Ask an agent about how we can help save you 40% on your coverage or use our online tool for a free business insurance quote to learn more.