Acquiring financing can be one of the most challenging aspects of starting a small business. You have a vision. You have done all of the research. You know exactly how much money you need, and how it is going to facilitate business growth. But, you have to convince investors or lenders that you entrepreneurial endeavor is going to take off, and you are worth the risk. On the other side of the proverbial coin, you need to be aware of the small business financing risks involving angel investors.
The best kind of angel investor is the person(s) that advance you the necessary money and leave you to use the money as needed. You make all of the decisions; you have control of the money; and, you angel sits back and waits for a return on their investment. They understand the potential risks and benefits of helping entrepreneurs.
However, not all investing angels are simply content to try and get in on the ground floor of a potentially successful venture and sit back and wait for the profits to start rolling in as another source of income. Some people feel entitled to get to close and cramp your style. In some cases, it can be a blessing; in others, it can be a curse.
How you feel about your angel depends on your personality and expectations. But, you simply need to be aware of the various relationships that can develop after you are given money. Then, you can decide whether the benefits are worth the risks.
Dark Angels
Beware of the dark angels. If you get involved with an angel of this caliber, your entrepreneurial dream can turn into a nightmare. Yes, you will receive the money needed for you small business; but, strings will be attached that you may not necessarily be aware of, until it is much too late.
While you are struggling down the path to a successful business, your angel may be a regular presence or sitting in the background waiting for your product or service to start generating significant profits. Then, your dark angel will swoop in, taking over the business, and leaving you wondering how your venture now belongs to someone else.
Before accepting money from any lender or investor, make sure you understand all of the fine print. If needed, you should hire a small business lawyer to go through all paperwork, before you sign on the dotted line. Never assume that you angel always has your best interests at heart, in addition to their desire to make money.
Mentor Angels
Mentor angels are truly the best kind of angel you will find to invest in your small business. They have a genuine interest in helping you succeed. Most have walked many miles in your shoes, and know the challenges you will likely face as a small business owner. Mentor angels are great cheerleaders, and they can be valuable advisors, especially during the time you are trying to get your business off the ground.
But, if you are the type of person that does not take constructive criticism or advice well, you may not want to ask a mentor angel for money. Even though their intentions are totally honorable, it can make for a very strained relationship, if you already have a business plan and prefer to always do it your way. In other words, if you sink or swim financially, it will be thanks to you and no one else.
Inheritance Angels
Inheritance angel investors should be approached with caution. While they may have recently come into some money, many have no idea how a small business becomes a profitable venture. Thus, they may have unrealistic expectations regarding the return on their investments.
Also, since they are your angels, they may feel like they have a right to dictate how you run the business. Unfortunately, all of their ideas are not grounded in experience. While they may simply be trying to be helpful, it can be a thorn in your side, when you are striving to implement your own business plan. In other words, you are not looking for a partner, and you certainly do not need the added responsibility of schooling someone in the finer art of business, because they feel entitle, due to their riches.
In short, angel investors are a great resource for small business financing. However, before cashing that check, you need to understand where your benefactor is coming from. Is it someone who understands business investment risks, or is it a person who has unrealistic expectations for a return on their investment? Is it an individual with business experience who will be a little too helpful, or someone who plans to take over once you have done all of the hard work? Angels can save your business, but you need to know the small business financing risks involving angel investors.