Is an angel investor right for your business venture?

Georgia is one of the friendliest states for new businesses, and you may be ready to take advantage of that benevolence and start your own venture. Of course, you probably already know it is not as simple as picking a product or service to offer and renting a space to conduct business. Before you even begin searching for commercial real estate, you have some important preliminary work to do.

Perhaps one of the most difficult and intimidating steps for those starting a new business is to obtain financing. You may be able to dip into your savings and scrape some cash together from friends and family. However, securing a small business loan is not easy for a startup with no collateral or cash flow. Therefore, you may be considering seeking an angel investor to get you started. Before taking this step, it is important to understand how angel investors work and the risks involved.

Advantages and disadvantages

An angel investor is someone who is willing to provide you with the cash you need to get your business going in exchange for an equity position in the company. In other words, instead of making monthly payments to repay the loan, you pay the investor an agreed-upon percentage of your profits. Some of the advantages of using angel investors over traditional business loans include the following:

  • You do not typically have to repay financing from an angel investor in the event your business fails.
  • Angel investors often have experience with new businesses and understand that recovering their investments may take some time.
  • Your investor may also add credibility to your business as well as provide customer contacts.
  • You may find that a business-savvy angel investor is also a helpful mentor.

As attractive as this may sound, it is not always easy to find such investors and convince them of the potential your business has for success. Also, while it may be helpful to seek out angel investors who have skills or expertise in your industry, the downside is that they may have their own ideas about the way you should run your company.

If you happen to have wealthy friends or relatives, you may approach them with the idea of investing in your company. On the other hand, with the right business plan and proposal, you may be able to attract affluent individuals or groups who are looking for a promising business in which to invest.