Starting a business can be tough, but starting a business to help fund other start-up business may be a lot tougher. Angel Investing is attractive because many people correlate lucrative initial public offerings (IPO) as part of their job description. However, it should be understood to achieve wealth by investing the money needed by a start-up takes a great deal of patience and wonderful eye for valuation and potential of a business. Therefore, anyone thinking of taking the plunge needs to know what is required to operate a good angel investment company. At the end of the day, it is your money that will be invested. Therefore, it could be your money that is loss if you are confused about angel investing.
Angel investment business requires a great deal of funding; therefore, cash must be readily available. Therefore, angel investor should have a net worth near one million dollars. A lawyer is required to ensure the correct deal is done and angel investor is protected. You must be a good evaluator of people and business. Contacts is very important aspect of doing business.
Angel investing is not for anyone who cannot afford it. It requires great deal of funding. Most angel investors will have net worth that nears or exceed one million dollars. It is not only net worth but an angel investor should have the cash flow that can fund start-up companies. Angel investors will invest according to the potential value of a company. Therefore, angel investor usually will invest $100,000 but rarely exceed one million dollars. Many people decide to join a syndicate that provides them access to other angel investors. It means they will be more access to deals and lesser funds may be required of them since they now would be a part of a group. A good lawyer is still necessary to be a successful angel investor.
When doing a deal, they could become quite complex; therefore, both the angel investor and start-up must be protected. A good lawyer will ensure there are provisions in your contract that ensures you share is diluted to nothing. Lawyer should be able understand negotiate Term sheet. The more rounds of funding that occurs the less of percentage angel investor will receive. Therefore, it is important the anti-dilution clauses be stated. Many investors use weighted average dilution. The formula to find the weighted average dilution is:
NCP= [(OB*OCP) + New$] / OA
NCP = New Conversion Price
OB = Outstanding Shares Before Offering
OCP = Old Conversion Price
New$ = Amount Raised in Offering
OA = Outstanding Shares After Offering
Angel investor must be able to pick good companies. Therefore, you must base the potential of business off great research. This will help you minimizing picking poor companies for investment. Angel investor must be able to get to know the people to ensure the company is being led in the right direction. An Angel investor must be able to interact with people. Therefore, it also means angel investor must have great contacts.
It is important to know people that will lead you to great deals. It will also help evaluate possible businesses by talking with other angel investors for possible advice. In some cases, contacts can lead to joining lucrative syndications and get involved with more deals. Developing contacts, it means angel investor must be great communicator. Angel investors must listen with purpose and be able to communicate their thoughts and ideas
Angel investing can be quite lucrative. It will require access to large amounts of cash. An angel investment company must have people who understand what it takes to start and sustain a business. Since legal aspect of various deals is not a cakewalk, an experienced attorney will be needed. A person must also realize the risk that not every investment will be the next great IPO. However, if this is not a problem, an angel investment could be a dream business.