The most difficult part for any company is to get past the initial stages. It has been found that most companies wither away within the first five years. One of the principal reasons for this is the lack of external funding. First I need to define what an angel investor is. It is different from a venture capital firm, but often the two are thought to be one and the same. Typically and angel investor is able invests smaller amounts, can invest without needing a place on the board, that it making managerial decisions, they impose less control on the investee and do not require complex terms. It is possible for a venture capital firm to be an angel investor, but one must be wary of the amount of control that the venture capital firm will want to exercise.

There are several forms of angel investors.

Friends and Family

These are probably the first people that you will approach for external funding. The advantage is that you know these people best. You should therefore be able to trust them most. On the other hand, you are putting these relationships which took years to form at risk in case anything goes awry.

Actual Angel Investors

As strange as this may sound, this is actually the hardest route. This is because angel investors like to remain anonymous. As a result, they are not easy to find. Not only this, but they do not know you personally. If they do indeed have a lot of spare money, they would rather invest a large amount, rather than the relatively small sums needed by startups. A relationship also needs to be built beforehand. Finally, the angel investor may only be able to serve you as somebody whom will refer you to other angel investors. At which point, you will need to start from point zero again.

Networks of Angel Investors

This is a very effective strategy, as each angel investor will only need to invest a smaller amount. On the other hand, maintaining such a network is time-consuming. This time might be better spent building the business itself.