Owning and operating a small business is never easy, particularly when the biggest part is gaining access to capital in order to finance the day-to-day operations.
Need money to fund your startup or expand your small business? Forget venture capital (VC) and bank loans. For 99% of today’s startups, VC money is a fantasy and bank loans are hard to get. Angel Investors (AIs) are the way to go. They are more abundant and better organised than before, and linking up with them has become easier (not easy, mind you, but easier than it was before).
Consider Chris Michael who recently sought funding for his virtual business phone numbers firm Swytch. He found funding paradise at a place called Angel Investment Network. “Xavier and the team at Angel Investment Network were a pleasure to work with, extremely professional and everybody that we were introduced to said the same. They provided us with quality leads and we have a couple on board as first round investors.”
Angel investors have become a key source of startup and early stage capital to tens of thousands of promising young companies annually. Moreover, Angel investors are actively looking for enterprises to back. Once conducted largely privately, the angel investment process has moved more front and centre stage. Some angels act alone, but today’s angels are more apt to work through angel investor groups that have bloomed universally.
Angel investors and venture capital (VC) firms are unalike. Whereas Angels invest mainly in startup and early stage businesses, VCs provide growth capital for later stage businesses. The good news for local based entrepreneurs is this: Locating angel groups, learning how they work, what types of startups interest them, and discovering the exact process on how to approach them, has become easier thanks to websites such as Caribbean Angel Investment Network (CAIN).
CAIN is the Caribbean’s branch of the Angel Investment Network (AIN) a professional alliance of angel groups, bringing together over 145,172 angel investors. Currently, over 2 billion dollars of capital is available on the Caribbean branch of the Angel Investment Network, a clear sign that the market is growing. Investors from various countries have also helped the market grow, with investors from China and India amongst the list of countries looking to invest in the Caribbean.
On CAIN’s website www.caribbeaninvestmentnetwork.com, The “Entrepreneurs” section will tell you:
• How to register
• How to add a pitch using their template
• How to connect with angel investors
• What criteria angel groups use to select entrepreneurs to back
• What fees you can expect to participate apply for group funding
• Information on Investors and sums they’re willing to invest
Usually, the investment process has numerous steps, including an initial application, pre-screening, screening, investment meeting, due diligence and, finally, a term sheet offering if you make the cut. Approximately one in three angel groups charge a fee to present your idea. For those groups that do charge, the average application fee is about $190, and the average presentation fee is around $500.
There are other angel investor sites entrepreneurs can try though most of them are Asean, Canadian, European, UK and USA centric. One exception is https://gust.com which provides a single common application for hundreds of angel groups around the world. The Gust Company Profile pilots you through the process of polishing your application and connecting with the right investors. Currently, thousands of companies have used their profile to collectively raise over $1 billion through the Gust angel network. So getting your funding request on Gust is a great way to help get yourself on the map and attract funding for your business.
You can also search for regional angels on the RAIN website at http://link-caribbean.com/rain/. It currently has three groups organised by country, such as Jamaica, and Barbados. The site includes a link to each member’s website where you can learn more about that particular group, including investment preferences and application process.
Here are three “should know” tips about finding and approaching angels, from the non-profit Angel Capital Education Foundation:
1. Angels are not venture capitalists (VC). Angels invest their own money in a business. VC money usually comes from institutional sources. Angels also back startup and early-stage businesses, while venture capitalists usually prefer later stage companies. Individual angels invest $5,000 to $100,000, while VC investments start $2 million and up.
2. To attract angel interest, be willing to relinquish some ownership or control of your business, and be able to show a significant return within 3-7 years, as well as a profitable exit strategy.
3. Seek angel funding when: a) your product or service is fully developed; b) you’ve already invested your own money (aka seed capital) and exhausted other alternatives (like family and friends); c) you have existing or confirmed potential customers; d) you can show that the business is likely to grow fast and can pass $1 - $10 million in revenues within 3-5 years.
For small amount, tech startup funding, check Y Combinator. If you have a startup idea in the software or web services space and need between $5,000 and $20,000, plunge in and submit your idea. These savvy startup funding people are more interested in good ideas than slick business plans. Interestingly, you don’t need to be a US citizen to take advantage of this funding.
Thinking of placing a pitch on CAIN? Here’s their advice on how to write it:
“Fill in our quick & easy pitch form to send your business idea to our network of Angel Investors.”
However, before you pitch investors, you need to build a minimum viable product or service, get it in front of customers, and know something about its product/market fit. If you can’t reach this stage by yourself, find some idea investors instead. Then register with CAIN, fill out and submit a 150-word elevator pitch that will be presented to CAINs registered angels. Spend time writing and re-writing the pitch until it’s remarkable. Get feedback from good writers and entrepreneurs who have raised money.”
Finally, you need to know your targets well in advance. There are entrepreneurs who end up in a meeting with angel investors oblivious of what they are looking to get out of the Angels. You need to value your idea and show the Angel the value in his/her investments. It’s essential to show some realistic projections in terms of gaining a footing in the market and converting your customers and sales into profits. Don’t try and bamboozle the Angel as they have a better feel of the market than you may have guessed. You need to focus on the top figure based on the possibilities of your idea. If your idea is sound and merit the money, an experienced investor won’t waver from putting his/her money into it.
Be aware of these things and you’ll be able to successfully raise the needed capital for your business.