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Principal benefits of angel financing

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in Business Management

Angels often provide seed capital when other options are not available.  If there is little or no history of profitability, it can be difficult for an entrepreneur to attract institutional investors.  Angels generally invest on the strength of a new idea backed by the enthusiasm and experience of the entrepreneur.  This provides new companies with resources to hire key employees and to develop a business model to the point where they can eventually seek larger scale, second-round financing through venture capital.

The process of negotiating and documenting the terms of financing is generally not as burdensome as other types of financing.  It often takes less time to meet with an angel investor and to receive funding.  Due diligence is not usually as onerous, and angel investors generally expect a lower rate of return than venture capitalists.  This can expedite initial transactions between the parties.

It is also generally easier to manage an angel relationship than relationships with institutional investors.  Angels tend to focus on early-stage investments, and they are more willing to accept the inherent risks, such as higher failure rates and uncertain capital returns, which regularly accompany these types of investments.  In addition, many angel investors have extensive entrepreneurial backgrounds and sophisticated business expertise.  This frequently enables them to offer assistance to the entrepreneur on a wide array of topics.  This is particularly useful for a start-up that has an innovative product or service but an unclear view as to its implementation.

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zelena@deleaoil.com January 23, 2011 at 7:24 pm



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