Congress is looking to encourage more angel investors to put more of their money behind companies as a way to reignite the American economy. Small businesses and startups drive U.S. economic growth, which is why lawmakers are looking into legislation that can support this initiative.
We've spoken of financing a young company through friends and family, known as "inside angels." There are three classes of equity investors for early stage businesses that we have not yet considered. Often grouped into formal organizations, these investors are sophisticated, helpful, and connected.
By getting others to back a small business financially, the company will have a much better chance of being prosperous over the long haul. The good news is that there are several options aspiring entrepreneurs and established small business owners can use to attract others to a company for the purpose of helping to fund it.
I see this confusion a lot: People use the terms "venture capital," "venture capitalist," and "VC" to apply to any outsider investing in a startup. However, it's really useful to draw some distinctions in this area, between three important classifications: venture capital, angel investors, and anybody else.
Each of us has a list of things we look for early on when identifying whether we want to go to the next step in analyzing a plan. Come to think of it, these are good for challenging any business plan.
If you are a screenplay writer, you are familiar with the dogma of the inciting incident. In a movie, the inciting incident is the event at the beginning of the story which causes the hero's life to be completely transformed and irrevocably changed, and which makes the whole story unfold.
You've got the ideas. You've got the plan. You've even got a potential staff. What you don't have is the money. Pairing with a venture capital firm can be promising but precarious.
Angels invest in people, more often than they invest in ideas. That means they need to know you, or someone they trust who does know you.
One of the biggest reasons small businesses fail is that they run out of money before they can effectively compete in the market. That's why it's important to raise enough capital at the beginning.
If you really want to impress a startup founder as a potential employee, or you want to be a smart investor, you need to know the right questions to ask.