So in this lesson, we're going to talk about raising capital through Angel Investing. We'll introduce a few sources of seed capital for your company. They will go through some pros and cons of angel investing particularly. And we'll talk about ways to find angel investors. Some things you want to think about when you're interviewing angel investors. And then finally, we'll talk about some documentation that you as the owner of the company, should have prepared when you're dealing with an angel investor. So in terms of sources of capital, there are many ways that you can raise money for your business. You can use venture capital funding, you can work with third parties and other companies through strategic alliances or joint ventures. You can pursue federal grants and federal loans to raise money for your company. You also can self finance or seek money from friends and family as private investors into your company. Another way of getting private investment for your company is through angel investing. And that's what we're going to spend some time talking about in this lesson. And angel investors typically, and affluent professional who provides seed capital for a start up business in exchange for equity ownership in the company. And usually, angel investors are driven by the desire to have a good return on investment. And they're looking for promising startups where they can participate in the financial upside of that company. In terms of the pros, the benefits of angel investing. First, it's quick access to capital. These are typically individuals that have access to money and they can get that money to your company fairly quickly once you've decided once they've decided to invest in your company. Oftentimes, angel investors aren't looking to control your company. They're really just making a financial investment in the company with a desire to realize a return on that investment. So they're not looking to have for example, a member of the board of directors. So as a result, if you're raising money through an angel investor, you have the ability to maintain, control and management of your company. Another benefit of angel investing is the network that comes from angel investors. Through the angel investor you can get contacts with other professionals. So if you need an accountant for your business or a lawyer for your business, angel investors may have those types of references and contacts for you. Angel investors may know VCs or partners or potential customers or even potential employees for your business. So there's a big network that you can benefit from, by engaging with an angel investor. Also, oftentimes, angel investors are looking at a particular space in terms of their investments. So they spend a lot of time studying that market, studying that area of business. So they can bring some strategic value to your company in a way that family and friends or self financing cannot. And also one of the biggest things that you'll need for future rounds of funding. An angel investors can bring credibility to your business. It essentially says that someone who is in the business of investing in startups, has looked at your business and they've decided that it's worth putting money behind your business plan. That type of credibility can be very useful for you later on, when you're seeking additional sources of capital. And there are some drawbacks to angel investing. First of all, you're dealing with an individual investor. And so you won't raise as much money as you could potentially raise with venture capital funding for example. Also an angel investor is going to want some equity ownership in the company. That's part of the motivation behind investing in your business. And as a result, that will result in some dilution of your equity stake in the company. And another drawback for angel investing is that it's very hard to find a really good angel investors. So let's talk about ways to find an angel investor. One way is to talk to other entrepreneurs. Other people that are in your space and what your business is operating. They may know angel investors who are looking to invest in that space. You can also check with investment bankers or venture capitalists. Because they know individuals who are angel investors. You can also seek references from other professionals, like lawyers or accountants. They can help you identify a fluent individuals who are looking to invest in promising startups. Lately there have been a more and more investor networks. And these are just networks of people who are in the business of investing in start up businesses. You can use crowd funding sites like Kickstarter to find individuals who are willing to invest in your business. And then angel list. This is one that I use a lot to see what angel investors are out there and given technology spaces. So you may want to search angel list as a way of finding potential angel investors. Now, once you find a good cadre of angel investors, you want to make sure you do your homework before engaging with a particular one. Now, nondisclosure agreements, our confidentiality agreements that allows you to exchange confidential information with a third party under the promise that that confidential information won't be further disclosed. So an NDA is typically what you've heard about is typically what you want to have signed when you're giving confidential information about your business to an outside party. Now with angel investors, it's very rare that an angel investor will sign an NDA. So there's some tension there because as as a founder of a company, whenever you're giving confidential information about your company, you always want to have an NDA in place. So how do you deal with the situation with angel investors where they're typically not going to sign an NDA? And that's because angel investors are getting, there getting requests from all kinds of startups right there more startups than there are angel investors. And if you insist upon an NDA, you may actually deter an angel investors from investing in your business. So the way you want to handle this is you don't want to insist upon an NDA if the if the angel is not willing to sign one. But you want to be very careful about the type of information that you're giving the angel investor. You can give whatever information is helpful for that person to decide whether they want to invest in your business. But make sure you keep trade secrets or intellectual property or other highly confidential information. Ensure that you keep that confidential. And any good angel investor will understand that absent an NDA you can't get into really highly confidential information. Also, when you're interviewing an angel investor, you want to get references from other entrepreneurs that they have invested in. And you want to go talk to those entrepreneurs. You want to figure out how it was working with that particular angel investor. This will give you a sense for u whether you'll get the type of strategic value and those other intangible benefits from this particular angel investor. Some of the key questions you want to ask when interviewing an angel investor is, what other investments do you have in this space? This will let you know how committed this angel is to the area of your business will be operating in. You also want to try to ascertain what helped the angel can offer you in terms of growing your business. This gets to the the strategic value benefits of engaging an angel investors. And then you want to figure out what relationships this angel investor may have, what venture capitalists? This is really a nod to future rounds of funding that you may want to consider for your business. If an angel investor doesn't have strong relationships with the VC, that may mean additional homework for you later on in the process. Conversely, if a particular angel investor has a number of relationships with VCs that may make the VC funding round a bit easier for you in the future. Most angel investors are going to insist that you have certain documentation in place. They're going to want to see these documentations so they can ascertain whether your business is a viable business. First is the articles of incorporation and your bylaws. The articles of incorporation are the initial document that you filed with the state in which you're incorporated in order to get your business started. They're going to want to see that. And the bylaws, which is a document that outlines how your business will operate. Any board resolutions. And the board of directors would have passed resolutions that allow the business to complete certain actions. And an investor is going to want to see what resolutions have the board passed. A tax ID. Which really signifies that you're able to collect and pay taxes on behalf of your business. Any invention assignments or employee agreements. This will help the investor determine what IP, maybe owned by your business. And what IP employees are bringing to your business. They may not belong to you. They also will see what type of risk management and compliance management processes you may have in place through your employee agreements. And then securities filings. To extend your company is issuing shares or other securities. Those filings with the Securities Exchange Commission will be very important, and investors will want to see that to determine whether your business is running properly. So in summary, raising money for your business is going to be a very important thing. But it requires attention to some very stringent legal requirements. They're various ways to raise capital, and each has its own pros and cons. Angel investing of course has the ability to get you quick access to capital, but it will result in some dilution of your equity ownership in the company. Now, before you engage in any transaction in which you are transferring shares or security interest in your business, you want to seek the counsel of a lawyer who's experienced in securities. So that you can make sure you're dotting your I's and crossing your Ts.
