Finding Cash For Your Business – Page 3 – Black Enterprise
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Finding Cash For Your Business

our products, and launch a massive public relations campaign. We’re now selling at Wal-Mart Supercenters, in all of its districts, and we’re expanding in the food service industry. Uncle Wiley has become the largest ethnic spice brand in the country.”

“Your typical angel is a person who has made money as an entrepreneur and wants to reinvest some of it to help new companies succeed” says Dan Mitchell, a consultant to entrepreneurs in New Haven, Connecticut. “Sometimes, they want to take a hand in running the new company. Typically, angels look for a solid market, good management, and a sound business plan. ”

According to Mitchell, angel investments are often in the $1 million to $3.5 million range but they may be much smaller. Terms vary considerably from one transaction to another. “There might be straight equity deals,” he says, “with the angel receiving common stock, or the angel might get stock options. In some cases, the angel might make a loan, which calls for repayment, and also receive some equity in the company. There’s a lot of flexibility in the way these arrangements are structured.” In the end, though, angels want to fly away with returns far in excess of those from safer investments.

“Generally speaking,” says Mitchell, “angels are looking for annual returns of 16% or more with a payout within five
years. That payout could come from a public offering or an acquisition by another company. If it’s a family business that the owner has no intention of ever selling, an angel might not be interested.”

Mitchell tells of one entrepreneur who came to him with a company that was barely in business — about $25,000 in annual sales. “He wanted $1.5 million in financing. I knew of an investor who was interested in this business area — homeland security — so I arranged a meeting. They negotiated for about six weeks before coming to terms. Ultimately, the angel agreed to invest the $1.5 million, with $250,000 upfront. The rest was scheduled to be paid according to a performance contract.”

That is, additional financing would depend on certain goals being met. “Sample products had to be created,” Mitchell says, “demonstration kits put together, and so on. The last two payments of $250,000 each were based on meeting revenue objectives.” So far, the process has been under way for two years and the company is probably a few years from being a buyout candidate, but annual sales have reached $10 million and the participants in this deal are “all smiling,” as Mitchell puts it.

If such success appeals to you, proceed with caution. Mitchell’s “No. 1 tip” to business owners seeking angel financing is to check out the credentials of the would-be benefactor. “Most people holding themselves out as angels are legitimate,” he says, “but some are not. Some of them just want to steal your technology, so they can do the manufacturing themselves, or steal some other type of intellectual property.”

To find an angel who’ll bless your venture, Mitchell recommends starting with the Kauffman Foundation at


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