Forward By: Joe Wallace
The kinds of jobs that are being dreamed of by cities worldwide are sustainable wealth creating engines. These businesses have high profit margins, attract professional people to an area, and enrich the communities in which they locate. Many such firms start with ideas hatched by entrepreneurs. The funding to drive these ideas to market are often accelerated by investments made by Angels or Venture Capital Firms. It is reported by the National Venture Capital Association that roughly 10% or all jobs and 20% or all earnings in America have VC money backing them. Unfortunately, Evansville has neither of these types of organizations and is missing out on the opportunities that investors in ideas offer. The following article explores an alternative to Venture Capital that I encourage local entrepreneurs and potential investors to become familiar with.
Article By: Thomas Ajava
It goes without saying that venture capital firms are severely stressed at the moment. Funding opportunities are simply way down and this is putting a major cramp on businesses looking to take the next step. Are there any alternatives to venture capital funds in today’s markets? Yes. Angel investors are becoming very popular choices.
What is an angel investor? Although not directly delivered by God, they can sometime seem like the answer to a prayer. In many ways, they act in very much the same way as a venture capital fund. The biggest difference is an angel investor is usually one person who is very wealthy and looking for very profitable potential investments.
The typical angel is someone who is retired from the business world for the most part. They probably built their business up and either sold it off or made so much money that they now have the ability to look for alternative investments. They understand how to ramp a business up and are more willing to work with a business than traditional investors.
How does the investment occur? Well, they are usually going to want a piece of ownership to collateralize their loan. The company needs to be valued and then a percentage of it put up in exchange for an investment amount. This is actually a good thing for most businesses. Why? With a vested interest, the angel will usually start getting involved with the business and lend their years of experience. Also, they will often introduce the business to parties they had previous relationships with, parties the business would usually have no chance of getting in front of.
Is there a downside to angel investors? Yes. The relationship has more of a personal feel to it than with venture capital, even though funds usually assign a point person to their contributions. Relationships can go bad, particularly if the business does not perform as desired. This can lead to conflict and litigation. Still, it is a risk most businesses are willing to take on, particularly in this financial environment.
There is a flipside to the “relationship problem” with angels. If the investment works out for the angel, you are usually set for life when it comes to future financing needs. Why? Well, the angel in question will give you the benefit of the doubt in future deals. More importantly, angels know other angels. They talk frequently. A positive referral from one angel to another is worth its weight in gold. Given the price of gold these days, you know that is a good thing!
Thomas Ajava writes for VentureCapitalInvestmentFirms.com – your online source for California venture capital investment firms.
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