Inside Small Business | Small Business & Home Business Marketing

Angels? I think not!

It was easy to raise the first $200,000 and easy to blow through it. What do we do now? We realized that “Angel” investors are anything but angels. Most of them are looking for companies who are desperate so they can buy shares at a reduced price. We vowed that Card Café was not going to be one of those companies. We really struggled to know how much ownership we should give up to raise money. The one thing we did know was we were almost broke. After countless hours of fundraising to our friends and family, we were able to raise more money.

There are so many questions with angel investors. Am I looking for equity investors or is debt a better way to go? How much stock am I willing to sacrifice? Does the angel offer more to my company than just money? Do we allow the angel to sit on the Board of Directors? How much do we involve him/her in the day to day operations? These are hard questions but must be asked and answered before you allow the investment.

We did pitch to many different angel groups. I am convinced if you talk to enough of them you can find a fit. They are all looking at different aspects of your business and each likes a different type of businesses. There are generally many angel groups in a city.

One method I absolutely loved was speed pitching. If you have the opportunity to participate, you should. This is where they have many angel investors spread out in a large room. You only have a short time with each (generally 5 minutes) angel to sell them on your company.. There are two things I liked about speed pitching. 1) It makes you really search to find the best aspects of your company. You have such a short time to tell a big story, you quickly realize what it is that separates your company from the fray. 2) You get to meet a lot of great people. Most of them won’t invest but you have been able to peak their curiosity about your company. Who knows if that will lead to something down the road.

There have been a few angles who are willing to help and seem to have the best interest of the company at heart. We have allowed one such angel to invest. It has been a great situation. We did appoint him to the Board. His business knowledge has been invaluable. He gives great suggestions and is quick to let us know when we do things he does not think are in the best interest of the company.

The bottom line is that angels are sometimes a necessary evil. When you need to include them, look for those that offer more to your company than just money and those that will give you a fair valuation.

Posted on Thursday, June 19th, 2008 at 11:56 am and is filed under Card Cafe. You can follow any responses to this entry through the RSS 2.0 feed.