Bill Payne has been enabling entrepreneurs through Angel Investing since before it was cool.

Six Days to Success - Securing Angel Capital - Day 1

Most people don’t know it, but there is a huge difference between Smart money and Dumb money. The implications can affect your business for years.

Smart money comes from savvy investors with the time and inclination to help you build your business.  These investors are successful, exited entrepreneurs or experienced businesspersons who bring both time and money to their portfolios of invested companies.  Funding from angel investors is smart money.  Many entrepreneurs have told me that the time angels invest in their companies is more valuable to them than the funding they provide.

It is lonely at the top.  Entrepreneurs have few problem-solving advisors and business counselors for vexing issues related to building management teams and growing businesses.  Smart money investors provide entrepreneurs with solutions through coaching and mentoring, and by serving on Boards of Directors of their invested companies.  Furthermore, a good Board of Directors meets regularly and forces the entrepreneur to work “on” the business not “in” the business at frequent intervals.  Stopping to look at the business from 30,000 feet, comparing performance to plan, and, if necessary, revising the plan are keys to success for high-growth companies.

Most angel groups require their members to be accredited investors (a SEC term for wealthy sources of capital) and most are former CEOs who have successfully run their own businesses or public companies.  Angel investors are a major source of smart money.  Angel groups specialize in local investments and are generally easy to find.  Entrepreneurs can find local angel groups by networking at entrepreneurial events, speaking with knowledgeable attorneys and accountants or by searching the list of angel groups on the website of the Angel Capital Education Foundation (www.angelcapitalassociation.org).

Solo angels are considerably more difficult to locate, but they generally bring the same sets of skills and experiences to entrepreneurs as do their colleagues who join groups.  Extensive networking locally is the only way to meet and attract solo angel investors to your company.  Start by asking the head of the local entrepreneurship center, your attorney or your accountant for introduction to angel investors.  You will find that angel investors know other angels, so don’t forget to continue to network once you identify an angel or two.  Perseverance is required to engage with solo angels.

Dumb money is invested by unsophisticated investors who have little or no business acumen to share with you.  Unsophisticated, passive investors, who invest in your company and patiently wait on the sidelines for return on investment, can be valuable to entrepreneurs, but there is always risk involved in taking dumb money.  Does the investor understand the risks involved in start-up companies?  Does this investor really understand the difference between an equity investment and debt financing, i.e. will these investors appear at your door one day expecting to immediately collect their money with interest?  Smart money always understands the risk involved and structures the deal with you so that it make sense for both sides.

Tomorrow’s installment is called:

 “THE GATEKEEPERS – And how to get by them every time.”

Sincerely,

Bill Payne

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Raising Money from Angels” Now

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