How many of you know the difference between angel investors, private investors and venture capitalists? You can look up definitions of the difference but they do not tell you the true meaning of the three groups I listed. Before I continue on, let me give you a layman’s terms definition of them.

• Angel Investor – an individual with a high net worth that typically invests in ventures within a field that they are knowledgeable about. The investment type is typically convertible debt with a percentage of equity in the venture.
• Private Investor – an individual with a higher than average net worth that invests in ventures both in and outside of their field of knowledge. The investment type ranges from a typical loan on at one end to all equity at the other, or some mix of the two.
• Venture Capitalist – typically a group of individuals (private investors) that invest in a venture within the field of their collective expertise. The investment type can range from convertible debt to all equity.

These are general definitions overlooking the entire groups. Individuals within the groups may have different behaviors. An easy way to differentiate is:

• Private investors generally deal in the upper hundreds of thousands to lower millions.
• Angel investors start in the lower millions up to hundreds of millions.
• Venture Capitalists are typically groups and are normally interested in taking the entity public or positioning it for acquisition.

Now that we have the terms defined and differentiated, allow me to demystify why many people seek Angel Investment but few actually receive it. The problem is in the format. Traditional business plans are formatted for bank loans. Banks loan (typically) up to $500,000. The bank expects your business plan to be in a certain format. They require your credit history, a personal guarantee, and collateral.

When you seek investment from an Angel Investor, you are in essence trying to form a relationship. They do not pull your credit report and they do not ask for your house as collateral. They invest because you were vivid enough in your presentation that they can share your vision. They believe in you and your ability to make that vision come to fruition. For this reason, they must like you and want to do business with you. Read this carefully, they do not do it for the money. They have enough for themselves and many generations to come. They invest for many other reasons: because they enjoy it, they want to make a difference, legacy, etc. So it is imperative that you build a relationship with them.

A typical business plan starts that relationship about as well as asking your date to pay for the meal and the gas before you even left on the date. Typical business plans ask for money and gives financials up front before any vision has been shared or relationship has been built. It is in the wrong format. If you give your business plan to an Angel Investor in the wrong format, they will know that you are not “In The Know” and you will get this response, “Looks good, can you leave this with me?” In Angel Investor language that means “Go away, I’m not interested.” You could have a great idea and a great financial projection with air tight stats virtually guaranteeing success. But if you do not submit things in a format that tells them, “This person knows what they are talking about and has enough respect for our relationship to do the research and get it right,” then you will get no where.

So, if you have been submitting your typical business plans to Angel Investors and received no response or the “Leave this with me” response, now you know why. It is time to change your business plan’s format. Explaining how to do the extensive business plan is too lengthy and in depth for this post. If you are interested in the process, contact me and I can lead you in the right direction.

This entry was posted on Tuesday, June 16th, 2009 at 10:10 pm and is filed under Money. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.