According to a study by the Small Business Administration, there are a quarter of a million angel investors funding tens of thousands of small companies every year in the United States. Starting your own angel investor group can be an enjoyable and rewarding way to improve your community, foster new business and potentially make a lot of money.
Instructions
1. Write a mission statement. While a mission statement is important for any business, it is the core guidelines of an angel investor group. A mission statement will determine whether your angel investor group is designed to maximize profit, safely invest, foster social benefit or fund innovation. This document will serve as a guide not only for choosing the businesses in which your group will invest, but also the type of investors you will be bringing into the group.
2. Select your investors. The average investment made by angel investors in a start-up company is $425,000, meaning that an angel investment group must be able to handle such large amounts of money as a standard matter. As such, each investor in your group should have disposable capital that can contribute to a collective amount well over a million dollars.
3. Determine how decisions are to be made within the group. While returns on investments will obviously vary based upon the individual angels' initial investments, determining how the group's decisions should be made is an entirely different matter. You could decide that anyone who has the required capital to participate in your group's investments should have an equal say in the group's decisions. Or you could invent a system of seniority or vote strength based upon the capital injected into the program. Ultimately, voting should be guided by the mandates of the mission statement, which will steer many of your decisions before they even reach the voting stage.
4. Determine how your investments will be recouped. While your investor group can and should negotiate on a case-by-case basis, knowing how you expect your investments to be handled is a primary concern of your group's standard policy. Some options include convertible debt, which will give you the option of seeking remuneration in the form of money or shares after a certain time, or ownership equity, with your investment group retaining stakes in the company's future.
5. Advertise or search for investment opportunities. Choosing to advertise and listen to proposals can potentially give you a pool of exceptional applicants. However, it can also pressure your angel investor group to take quick action. Finding your own opportunities could involve lots of research, but may result in a company about which your members are passionate.
6. Develop a contract. Once you have found a company your group is interested in funding, begin developing a collaborative contract. Do you want your business seeking additional financial aid, or is your group to be the only source? Will capital be injected in installments depending upon certain benchmarks being made? The contract allows your group to decide whether or not to be hands-off or hands-on, depending upon your group philosophy.
