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Article #6: Financing your bussiness

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If your business is too new, too risky else) to part with their cash to support
and unproven, or too offbeat to qualify your venture takes a lot of time and hard
for traditional bank financing and work. Be sure to dedicate enough time and
attract venture capitalists, you may want budget in your search for financing.
to look for an "angel." Although the Once you find a prospect, send a letter
figures vary widely, angel financing is requesting a short meeting to discuss the
believed to provide billions of dollars proposal. A more effective approach is to
in capital to entrepreneurs every year. be personally introduced to the angel
If your company is too new, too risky and investor by a common friend. People are
unproven, or too offbeat to qualify for more inclined to be receptive to offers
traditional bank financing and attract from other people if the request come
venture capitalists, you may want to look from people whom they trust.
for an angel. An angel is a private In the event that the prospective angel
investor, often a successful shows interest in your business idea,
entrepreneur, who invests in small make sure that you have prepared a
businesses close to home for a variety of well-researched detailed business plan.
economic and personal reasons. Usually, Your plan should emphasize why you need
angels are friends, relatives, or additional financing and exactly what you
colleagues. Successful entrepreneurs, plan to do with the money. Write an
especially retired ones, are especially executive summary for the plan that
likely to become angels. spells out in one page why someone should
Although the figures vary widely, angels invest money in your business. Explain
are believed to provide billions of too, how you can repay the money and
dollars in capital to entrepreneurs every when. Better yet, have presentation
year. Based on demographics, studies materials ready based on your business
characterize angels as follows: They are plan in order to have a more effective
wealthy They are usually self-made as discussion with your prospective
opposed to inherited wealth Is usually in investor. You want to appear relaxed,
their sixties; almost never below forty confident and knowledgeable as possible.
Angels prefer to invest in companies they If the investor is interested, bring in
are familiar with. They usually seek out your lawyer and accountant to the
small and growing companies in their own negotiations. Informal investors usually
industry. invest from $10,000 to $100,000 in each
How do you find an angel for your venture. While angels may be able to
business? Here are some tips: 1. The invest considerable money in your venture
first place to look for is among your without requiring the kind of
business associates. You have a greater documentation that other investors do,
chance of securing financing from people put your arrangement in writing to reduce
who knows you. Then ask your business misunderstandings.
associates to ask their acquaintances. Angels may prefer to make straight loans
However, the farther the relationship and at rates comparable to banks or slightly
the lesser the prospective angel knows higher rate. They generally expect to
you, the lesser the chances of securing lend their money from three to seven
the investment unless they have a unique years, with some guaranteed exit
understanding of your product. provisions such as mandatory buy-out.
2. Network, network and network. Join a Others may want to be repaid in stock if
professional organization or trade group your company eventually goes public. Be
for your industry. Begin attending sure to tailor the financial arrangements
meetings on a regular basis. This is the to fit your angel's needs.
best way to get acquainted with Angels can also provide you, not just
successful business owners in your field. with money, but guidance, advice and a
3. Stay local. You don't need to go mentor relationship. Also called
beyond your geographic area to find "advisory investors," they are generally
investors willing to take their chances not interested in controlling the
with your venture. business, but may require you to meet
4. Discreetly inquire about people who certain business goals or follow certain
appear to be the most successful members business practices. If possible,
of your industry. Pitch the idea to your encourage your angel to become a member
lawyer or accountant - they may be of your informal advisory board. Many
interested or know someone who could be angels like to keep a close eye on their
interested. They may have clients who money; plus, they can offer you
frequently invest in a new and growing invaluable advice. If your angel is well
business. connected in the local business
4. Research on the Internet. Some sites community, he or she may help you find
provide listings of angel investors per additional investors, introduce you to a
geographical location, while others banker or an attorney, or bring in new
provide focused advice on getting customers. An angel may also help you
investors for your small business. Check gain membership in a club or professional
out the following sites: vFinance society that will benefit your business.
Directory of Angel Investors: http:/ Remember that every relationship is
www.vfinance.com International Angel different. The key to success is doing
Investors Institute: http:/ everything you can to increase your
www.angelinvestors.org Venture Vortex: angel's comfort level so the person's
http:// www.venturevortex.com However, investment and relationship with you and
the rule is always to raise money at the your business will be longstanding and
right time. Convincing angels (or anyone profitable.






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