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What entrepreneurs should know about angel investors

On Behalf of | Jun 8, 2017 | Business Formation & Planning

Possibly one of the most difficult aspects of starting a business in New York is coming up with the capital needed for success. According to Entrepreneur magazine, angel investors are quickly becoming the go-to source of funding for startups. These individuals are willing to invest their own money, even though they tend to make somewhat average salaries. Often, they are driven by an entrepreneur’s idea and vision rather than the need to see profits, making them a preferred resource for those who believe they have the next big product or service.

Not all investors contribute money. For example, a supplier may offer lower prices on inventory. On the other hand, some people may want to actually buy their way into the company, offering to purchase a portion of the business. Other angels may be acquaintances who are professionals or who have equity in their homes that they are willing to invest. Successful entrepreneurs are often quick to recognize a good idea and want to sponsor it, as well.

Forbes magazine notes that some angel investors want to have some level of input, and because they frequently seek opportunities in their own field of expertise, they may become an excellent resource for knowledge and advice in the marketplace. They may also be a source of contacts for further funding, partners, customers and employees.

One of the most important things an investor may want to know is that the entrepreneur has a clear business plan. The investment opportunity may appear even more appealing if an angel can see that certain documents are already in place. They often want to review the company’s articles of incorporation, bylaws, stock option plans, tax ID number and other legal paperwork. However, an entrepreneur may not be well-served to share intellectual property with potential angels. Even though that may seem like best way to prove an idea’s worth, investors typically do not sign nondisclosure agreements.