Angel Investors
Angel investors have become common in the modern society. An angel investor or a business angel is a person who offers capital that is required to start up a business. The person is aimed at getting a “convertible debt” and ownership equity after giving the capital to start up the business. Most of the angel investors organize themselves into angel groups sometimes called “angel networks”. The angels organize themselves into such groups so as to bring together their investment capital or share research. Angels invest their funds unlike other people like capitalists. Venture capitalists control the money that is collected from other people in “a professionally managed fund” Studies have shown that business that have been started using angel funds are less likely to fail unlike companies that are established using the normal method of funding. Angel capital is important as it seals the gap that results during start up financing between family and friends. Angel investment is important as it makes it easy for people to start up business easily. It is considered the second best method for financing businesses that are growing fast. There is no fixed amount for angel investing and the angel groups can raise as much as they want. Angel investing is common in United States. For instance, a number of companies in United States received angel funds in 2007.The companies received more than 450,000.Apart from offering funds, angel investors offer other services. For instance, they provide expertise, experience to the businesses. They also offer contacts.
Angel investing has a lot of advantages and disadvantages as evidenced in the Nova-Flo. Though angel investing has some disadvantages, the advantages outweigh the disadvantages. This is shown in the Nova-Flo. The advantages of angel investing lie on the various features of angel investors and the value they bring to the company. First, angel investing is important as it helps provide the capital needed to start up a business (Rees-Mogg, 2008).
Most of the people in many countries have relied on angel investing to start up their businesses. This is because they are able to get up start up capital easily. The entrepreneurs have a chance to get money to start their business after exhausting all other resources like resources from friends, families, loans and savings. At this point, the entrepreneurs are able to get help from angel investors. Studies have shown that 2/3 of the funds required to start new business are gotten from angel investors. This is according to a study carried out by the center for venture research (Rees-Mogg, 2008).
The researchers argued that angel investors can provide huge amounts of funds for new enterprises that have a high growth. In addition, the case in the Nova-Flo has shown that angel investing helps business raise capital in small amounts. Most of the businesses at an early stage need small amounts of money. For instance, the businesses do not always need more than $500,000.The angel investors are able to provide such amounts using their savings. On the hand, venture capitalists invest in business that are at the last stage and need huge amounts of money. Hence, angel investing has a lot of benefits for small business Moreover; angel investors have a flexible business agreement. In most cases, the angel investors use informal business agreements as evidenced in the case. This is in contrast to banks. The investors are able to negotiate with the business owners as they are infesting their own funds. Hence, the angel investors are a good source of money for business at the early stages due to the flexibility (Singh, 2009).
Further, angel investing has an advantage to the business owners as it helps enhance knowledge and experience in the company. Most of the angel investors have a wide range of experience from their past business. This is because they have acted as leaders in their past businesses. Therefore, the investors are at a better position to provide expertise, support and contacts. This in turn makes it easy for the business to grow. Angel investing does not need large amounts of monthly fee. This is because angel investing does not have specific payment rates that are found in banks. This makes it easy for the business owners to concentrate on improving the business, but not paying debts. Lastly, angel investors are found every where in the world and this enables most people to access them (Singh, 2009).
There are various disadvantages that are linked with angel investing according to the case. First, angel investors do not make regular follow on the business. This is because of the high risk that is associated with the business. Angel investing is risky because the investor is not sure if the business will succeed or not. In addition, angel investing can be deceptive. This happens if the angel investors are interested in money instead of offering expertise, guidance and contact to the business. The business owners should analyze the angel investors well before seeking their help so as to determine their reputation and character. Further, angel investing is expensive. Most of the angel investors provide start up capital in exchange for other things like a share in the company etc. They also expect a huge ROI when leaving the company and this might affect the business negatively. In some cases, the angel investors might hire professional workers to carry out business activities. Active involvement of the angel investor in the company can lead to problems. Some of the angel investors provide capital so as to control the business. The active involvement might affect the management of the organization if the investor does not have the right skills as shown in the case. This in turn adds little value to the business (Dragon’s Den Nova-Flo Pitch, 2011).
Reference
Dragon’s Den Nova-Flo Pitch.(2011). Retrieved from
http://www.youtube.com/watch?v=xu0QifxOGvs on 17/02/2011.
Rees-Mogg, M.. (2008). Nova-Flo: A case study on how Dragons’ Den compares with the real world of business angel investment. Dragons or Angels, page 45-48.
Singh.A (2009). I turned down the Dragons, now the orders are flooding in. Evening Standard,27. Retrieved from http://www.thisislondon.co.uk/standard/article-23665532-i-turned-down-the-dragons-now-the-orders-are-flooding-in.do On 17/0/2011
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