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Angel Investors

Angel Investors

Angel investors are wealthy individuals seeking to invest their own money in early stage companies.

Entrepreneur

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Angel investors operate with a similar investment profile to venture capitalists, also seeking to realise large returns from a few companies in a portfolio of investments. Angel investors typically have more flexibility than venture capitalists because they are investing their own money. They are not under as much pressure to exit from an investment in a new venture within a specified time frame.

Originally a term used to describe investors in Broadway shows, “angel” now refers to anyone who invests his or her money in an entrepreneurial company. Institutional venture capitalists invest other people’s money. Angel investing has soared in recent years as a growing number of individuals seek better returns on their money than they can get from traditional investment vehicles.

Angels come in two varieties: those you know and those you don’t know. They may include professionals such as doctors and lawyers; business associates such as executives, suppliers and customers; and even other entrepreneurs. Unlike venture capitalists and bankers, many angels are not motivated solely by profit. Particularly if your angel is a current or former entrepreneur, he or she may be motivated as much by the enjoyment of helping a young business succeed as by the money he or she stands to gain. Angels are more likely than venture capitalists to be persuaded by an entrepreneur’s drive to succeed, persistence and mental discipline.??

Angel investors vary widely, but they are typically willing to accept risk and demand little or no control in return for owning a piece of a business that may be valuable some day.? Angels can be classified into two groups: affiliated and non-affiliated. An affiliated angel is someone who has some sort of contact with you or your business but is not necessarily related to or acquainted with you. A non-affiliated angel has no connection with either you or your business. ?It makes sense to start your investor search by seeking an affiliated angel since he or she is already familiar with you or your business and has a vested interest in the relationship.

Affiliated Angel Category:

Begin by jotting down names of people who might fit the category of affiliated angel:

1. Professionals.
These include professional providers of services you now use – doctors, dentists, lawyers, accountants and so on. You know these people, so an appointment should be easy to arrange. Professionals usually have discretionary income available to invest in outside projects, and if they’re not interested, they may be able to recommend a colleague who is.

2. Business Associates.
These are people you come in contact with during the normal course of your business day. They can be divided into four subgroups:

  • Suppliers/vendors. The owners of companies who supply your inventory and other needs have a vital interest in your company’s success and make excellent angels. A supplier’s investment may not come in the form of cash but in the form of better payment terms or cheaper prices. Suppliers might even use their credit to help you get a loan.
  • Customers. These are especially good contacts if they use your product or service to make or sell their own goods.
  • Employees. Some of your key employees may be sitting on unused equity in their homes that would make excellent collateral for a business loan to your business. There is no greater incentive to an employee than to share in ownership.
  • Competitors. These include owners of similar companies you don’t directly compete with. If a competitor is doing business in another part of the country and doesn’t infringe on your territory, he or she may have capital and information to share.

Non-Affiliated Angel Category:

1. Professionals.
This group can include lawyers, accountants, consultants and brokers whom you don’t know personally or do business with?

2. Middle Managers.
Angels in middle management positions start investing in small businesses for two major reasons – either they are bored with their jobs and are looking for outside interests, or they are nearing retirement and fear they’re being phased out?

3. Entrepreneurs.
These angels are (or have been) successful in their own businesses and like investing in other entrepreneurial ventures. Entrepreneurs who are familiar with your industry make excellent investors.

To look for non-affiliated angels, try these proven methods:

  • Advertising
  • Business brokers
  • Telemarketing
  • Networking
  • Intermediaries (Firms that find angels for entrepreneurial companies. Ask your lawyer or accountant for a reputable firm)

Angels tend to find most of their investment opportunities through friends and business associates, so whatever method you use to search for angels, it’s also important to spread the word. Tell your advisors and people you meet at networking events, or anyone who could be a good source of referrals.

Entrepreneur Magazine is South Africa's top read business publication with the highest readership per month according to AMPS. The title has won seven major publishing excellence awards since it's launch in 2006. Entrepreneur Magazine is the "how-to" handbook for growing companies. Find us on Google+ here.

Angel Investors

A Comprehensive List Of Angel Investors That Fund South African Start-Ups

To get your start-up off the ground you’ll need money. An alternative is to ask an angel investor for that initial capital injection to give your start-up a better chance at success.

Nicole Crampton

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An angel investor is usually a high net-worth individual or group that provides capital to start-ups. They are referred to as angels because they are willing to invest their personal funds into a struggling higher risk business, when no one else will. Just like funds and incubators, some angel investors will focus on a specific industries.

What is an angel investor?

“Angel investors got their name 100 years ago in New York City when struggling playwrights – with limited financial means – had theatrical productions funded by a wealthy and visionary individual usually at the last minute,” explains David Newton, professor of entrepreneurial finance and author of four books on both entrepreneurship and finance investments.

He says that this generosity was associated to angels floating down from heaven with money so the show could go on. However, these angels were astute investors with keen eyes for investments that would achieve high profits. Angels fund a business to get in on the ground floor of an opportunity for financial gain.

The difference between an angel investor and a venture capitalist

Venture capital funding usually comes from a firm with people selected to help your business develop. Venture capital firms are comprised of professional investors. The capital is generated from a variety of sources such as corporations and individuals, private and public pension funds, and foundations.

A venture capital firm is looking for businesses with high growth potential. They will then buy shares and have a say in the future of a business, in exchange they expect a high return on investment.

The pros and cons of choosing an angel investor

The funding an angel investor can bring to the table could make all the difference in getting your start-up off the ground, but there are a few trade-offs you need to be aware off:

The pros

  • Angel investors are usually entrepreneurs themselves, who understand the level of risk involved in investing with you, and so they won’t require you to jump through as many hoops as with a typical business loan.
  • An angel investor will offer you capital in exchange for an ownership stake, which means you won’t have to repay their investment.
  • Angel investors bring years of expertise and already understand the challenges your business will need to overcome before reaching success.

The cons

  • The cons of an angel investor taking on high risk start-ups is they usually have high expectations. It isn’t unusual for an angel investor to expect a rate of return 10 times their original investment within the first 5-7 years.
  • Offering up a portion of ownership to the angel investor can limit your start-up’s capability of realising a profit, if you don’t carefully assess the terms.
  • The angel will want to take an active part in making decisions, or they’ll want you to explain the reasons behind some of your decisions.

Here is our comprehensive list of 43 angel investors interested in South African start-ups:

  1. Ernst Hertzog
  2. Brett Mason
  3. Avi Eyal
  4. Joel Gascoigne
  5. Brett Dawson
  6. Michael Leeman
  7. Lawrence T Levine
  8. Saul Klein
  9. Mohamed Nanabhay
  10. Sean Emery
  11. Vinny Lingham
  12. Bukola Jejeloye
  13. Kresten Buch
  14. Abu Cassim
  15. Pardon Makumbe
  16. Charles Lorenceau
  17. Justin Stanford
  18. Zachariah George
  19. Daniel Guasco
  20. Craig Raw
  21. Rob Stokes
  22. Mark Levitt
  23. Alvin Singh
  24. Dean Cannell
  25. Llew Claasen
  26. Ari Lustbader
  27. Tommy Chia
  28. Mark Pretorius
  29. Henk Kleynhans
  30. Michael Jordaan
  31. Dotun Olowoporoku
  32. Abrar Ahmad
  33. Michael Greve
  34. Wayne Gosling
  35. Jordan Wainer
  36. Paul Brown
  37. Dan Stephenson
  38. Malcolm Gray
  39. Richard Rose
  40. Mark Forrester
  41. Shlomi Podgaetz
  42. Jesse Hemson-Struthers
  43. Cassian Coquelle and Hendrik du Preez and Andre Bottger
  44. Angel Investor Networks
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Angel Investors

When Attracting Investors Go Ugly Early

When it comes to attracting an investor, use the same strategies in the boardroom as you would in the barroom.

Alan Knott-Craig

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If you want to make money from your idea, you must be unique in your ability to execute it. Sometimes you have a great idea – a game-changing idea; an idea that’s worth a billion dollars – so you start thinking about how to make it a reality and you quickly realise that you don’t have sufficient capital, technical expertise and/or time.

At this point you’re faced with two choices: 

Option 1: Be paranoid

Start worrying someone will steal your genius idea. Insist on NDAs before sharing. Start fantasising about selling your idea to a giant corporation that is so lethargic it would never be able to come up with your idea.

Related: 9 Tips for Winning Investors in the 5 Minutes You Have Their Attention

Option 2: Share

Start telling everyone about your idea. Share it on Twitter or Facebook. Tell the world!

Option 1 is a dead-end filled with losers. Option 2 carries the small chance that you get ten people who validate your idea and you can take the next step.

Option 1 deprives the world of your idea and leads to you muttering: “I thought of Facebook long before Zuckerberg,” whilst sipping a late-harvest semi-sweet wine with ice. Option 2 gives you a small shot at being part of a bigger story, and at the very least, gives the world a chance to benefit from your idea, even if you enjoy no financial upside (or credit).

Investor-meeting

Get screwed early

If someone steals your idea and makes a success of it, tough luck. If your contribution is not critical to the realisation of the idea, then the idea is worthless. At the very least, you can identify crooks early on. The world is full of crooks. Giving people an opportunity to screw you early is a great way to filter bad people from your life.

Build a track record

Okay, so you’ve got the idea. Now you need funding — you need a shareholder. First, you need a network. Cold calls rarely work. Investors work on personal references. With luck, your parents or your friends or your colleagues can plug you into a capital network.

If you weren’t born lucky, you have to make your own luck. The shortcut is to marry rich, although that usually results in long-term unhappiness.

The long route is: Go work at a reputable company, build a track record and strong relationships that you can leverage when you are ready to start your own business.

Related: When Angel Investors Reject Your Plan

Go ugly early

Once you have access to a network, you need to attract investors’ attention. Getting the attention of an investor is a bit like finding love at a bar. If you’re like me and you always struggled to attract good-looking members of the opposite sex, employ the ‘go ugly early’ strategy.

The same strategy works when it comes to chasing funding. Instead of chasing the most attractive person in the room, head straight for the hunchback. This will save you time. Also, it will gain the attention of the most attractive person in the room. “That’s weird, why is that guy not talking to me? Everyone always talks to me!”

Here’s the thing: The key to the ‘go ugly early’ strategy is to be noticed. It’s no good chatting up the hunchback if Leonardo Dicaprio can’t see you doing it.

Close the deal

Okay, assuming you can attract interest, you need to close the deal. Get the basics right. Dress smart, have your forecasts on hand, be clear that you’re in it for the money (not to save the world). Most importantly, show your passion. People don’t invest in excel spreadsheets — people invest in dreams. Sell the dream.

If you don’t close the deal, don’t sweat it. Move to the next girl (or guy) at the bar. Remember, the best investors are hard to get. If someone seems too eager to give you cash, think twice. Easy cash is like easy sex. It normally comes with STDs…

Raising money is all about people. Be yourself and the right person will choose you. If you try to be someone that you’re not, you may find yourself in bed with the wrong person. And shareholding relationships are like the mafia: It’s hard getting in, but it’s much harder getting out.


Read ‘Be A Hero’ today

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Angel Investors

How To Fund Your Business By Taking On New Shareholders

Here are four practical things to consider and implement to do just that.

Adrian Dommisse

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There comes a time when your business needs an injection of capital to get over that hump. The hump might be the viability test for your product; the road to earning revenue; or the boost to take your business to that next milestone. Whatever it is for your specific company, finding the best way to raise the needed cash is an important and often challenging task.

A conventional way to do this is to bring on a new shareholder. Here are four practical things to consider and implement to do just that:

1The practicalities

First up, how do you practically raise funds by bringing a new shareholder on board? It’s important to understand that your company is raising funding. This is done by offering ownership to the funders in the form of shares. The ownership and value of the company is split into fractions (shares) – a new owner puts money into the company, and gets shares in the ownership of the company in return.

Related: How Giraffe Played The VC Game (And Won Funding)

2Measuring your company’s value

The natural next question is: how much ownership does the new shareholder get in return for their contribution? Does a R 1 million investment get the new shareholder 50% or 5% of the ownership of the company? As you can expect, this depends on the value of the company before the investment.

How do you measure the value? Luckily, there are whole industries dedicated to doing this – with the essence being: Your company’s value depends on its ability to earn profits for its shareholders.

There are many ways to measure that, but you will essentially need to show a compelling argument of why the company can earn profits for its shareholders.

3The start-up challenge

This is where the early stage start-up company faces a real challenge. The start-up will often have little or no actual revenue – making it hard or even impossible to show a track record of earning profits for its shareholders. The challenge here is to show its potential to earn revenue.

Typically, this comes down to showing a great product, a great management team, reliable research into the size of the market or potential market, and how the start-up’s value offering can crack that market wide open.

Related: Arbor Capital Tell You Which Funding Is Smart – And Which Is Not

4The investor’s risk

Once you’ve convinced an investor to buy 5% of your company for let’s say R1million rand, and you’ve given them a 5% shareholding in your company, what’s the next step? What risk does your investor take?

The starting point is that your investor is now a shareholder, so they take all the risks that you do. If the company fails despite your best efforts, the investor takes that risk and has no claim against you or the other shareholders.

It is common for sophisticated investors (think Venture Capital, Private Equity or Angel Investment Funds) to try and limit that risk. Common tools here include liquidity preference – which is a fancy way of saying that they get their investment back before you do, should the company become insolvent (that is if there is any cash back).

But what do you personally owe that investor in return? This is important – you as a director of the company will owe a duty to that investor to spend their money wisely, in the interests of all the shareholders. You owe them a duty to manage the affairs of the company prudently. You are now the custodian of someone else’s money and your goal is to build the value of the company so that you give all the shareholders a return on their assets. If you breach this duty, you can be held personally responsible for the shareholder’s loss.

Again, sophisticated investors can also require more from you – especially if you and your start up management team are essential to the growth and viability of the business. They can “lock up” your shares in such a way that you can’t sell for a specified period of time. They can also require your shares to “vest” over time so that if you leave before then, the company can take back your shares.

These and other tools are specifically intended to minimise the investor’s risk by motivating you as the founder and director of the company to stay and grow the company’s value.

Planning ‘life after the investment’

It seems obvious that you should prepare carefully for fund raising. It can be a time consuming exercise – but one you’ll never regret. It’s important to know what your potential investors want to see in order to agree to the value of your company.

Also, it’s vital to be very clear on what your obligations will be to the new shareholders once they come on board. Discuss both their expectations of you, as well as your expectations of them. Build the “life after investment” picture very clearly so that you know what your position will be afterwards.

In a nutshell – lay strong foundations with investors for a long term relationship in advance, and your company’s long term prospects will be much healthier.

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