Steps to Growth Capital Self-Study GuideStep 6

6.4 Founders and Angels

Early-stage investing often comes from:

• Founder Capital – you, the entrepreneur;
  
• Love Money – your family and friends; and
  
• Angel Investors – wealthy businesspeople with contacts.

Also, see Corporate and Institutional Investors.

Level of Involvement

Active: Plan Strategize Network	Make Decisions Source	Passive: Monitor investment Meet periodically

Founder Capital and Love Money

You, as the entrepreneur, are considered a founder. The most logical place to look for financing is your own assets. These sources include money in the bank, certificates of deposit, shares and bonds, cash value in insurance policies, real estate, home equity and pension funds.

Love money investors are your family and friends. If you borrow from relatives and friends, make sure to spell out clearly the terms of the funding agreement (including the date, amount of the loan, interest rate, repayment schedule, collateral, signatures) to avoid future problems and disagreements.

How Much They Invest

Generally, the amount of money invested is small. Founder capital and love money are important at the earliest stage of your company's or project's development, a stage too risky for most other investors to back.

Angel Investors

In general, angel investors are wealthy people, such as retired entrepreneurs and executives, who want not only to invest money but also to contribute their valuable business experience. Others are wealthy professionals, such as doctors or lawyers, who prefer to take a passive role in a business.

Angels bring much more than money to your business; they bring experience and know-how. They usually want to play an active role in your business. Their experience can work to your advantage if your management team lacks their kind of expertise.

Most angels want to see you invest plenty of your own money to make sure you're really committed.

Angel investors are hard to find because they don't advertise their willingness to invest. You'll typically need a referral from a financial advisor or other professional who has established contacts with these individuals.

How Much They Invest

Typical angel investors will invest between $25,000 to $250,000 in small and medium-sized businesses. Generally they provide equity financing and look for a return on their investment of about 30%.

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