Angel Networks

April 13, 2006

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In addition to your own efforts at finding interested investors in your community, you can take advantage of a growing cottage industry of "angel network" firms that will match up prospective investors with small businesses.

Work Smart

The Small Business Administration has its own angel network on the Internet called Active Capital, formerly known as AceNet.

Angel network firms solicit background information from entrepreneurs and investors who subscribe to their service. The network firms make their money by charging a subscription fee to each entrepreneur and investor for inclusion in their match-making database. The entrepreneur will be asked to prepare a business profile identifying traits such as the relevant industry, the business's age, geographic location, size of investment needed, and any conditions or factors that the entrepreneur requires. The investors prepare a similar profile of the kind of company they are looking to invest in and the type of investment they are willing to make. The network firms typically screen these submissions and then send a limited list to compatible investors.

Whether or not the investor elects to contact the business, and the terms of any investment relationship, is left to the parties to determine. For investors, the most important factor typically is the relevant work experience of the entrepreneur. They want to know if this person has a track record that may allow him or her to pull off the difficult task of making a big success out of a small business. Startup businesses have been funded through these networks, but many angels prefer that you have at least a minimal operating history before they'll be willing to risk their personal funds in a small business.

Warning

Some of the angel networks include both private investors and venture capital firms in their database. While some small businesses may appreciate the expanded investor market, others may not be interested in financing from VC firms. You should include any such preference in your subscriber information sheet.