How to Find Your Angel Investor

As a rule, angel investors are wealthy people who like to bet on early-stage startups.
They offer first-round financing, bridging the gap between bootstrapping and institutional capital, with the hope that their high-risk seed money will return big rewards.

Numbering about 260,500 nationwide, according to Jeffrey Sohl, director of the Center for Venture Research at the University of New Hampshire, angels work on their own or by joining private networks that pool money, share expertise and divvy the due-diligence tasks.

The range of individual investments runs from $10,000 to $1 million, with deals typically between $25,000 and $100,000. Group or network ventures usually run $250,000 to $750,000 each.

Who are these angels?

Jeff Pulver could be the angel poster child. Trained as an accountant and bonds trader, he began investing in emerging Internet technologies more than a decade ago, notably as co-founder of Vonage, the VoIP phone service. "I have a history of getting involved early in such markets," says Pulver, who's also poised to reap the benefits of his early bet on Twitter--the social networking company has recently been valued at a staggering $1 billion as it hurtles toward a public offering.

How to search for an angel

Your first stops should be the two best online listings of active angel individuals and networks in the U.S. and Canada: the Angel Capital Association, a professional alliance of 330 angel groups, and the Angel Capital Education Foundation, a nonprofit supported by the Ewing Marion Kauffman Foundation, which lists about 200 angel networks. For background data, average deal sizes and profiles of angel characteristics and demographics, head to the Center for Venture Research website.

How to pitch an angel

Once you've identified a likely individual or network, invest in some research. Work your contacts to learn what makes the angel tick. Why does he or she invest? How does the network operate? What kinds of investments have they made in the past, and what were the results?

The idea is to audition the potential fit so you don't waste time or resources (either yours or theirs). If it looks right, the next step is to get acquainted. "The best-case scenario is when two or three people have already spoken to an angel on your behalf before you contact them," says Connie Wright, Boston-based managing director at Accounting Management Solutions, an outsourcing service for small businesses.

What your pitch should emphasize

The real skinny on what gets angels juiced, says veteran angel and former banker John O. Huston, is all about potential return. What that means, according to Huston, is that angels look for opportunities to make four times their investment within three years.

Sporting a long resume of structuring private companies, and now chair of the Angel Capital Association and founder of Ohio TechAngels, the second-largest angel fund in North America, Huston says it's rare for angels to hear entrepreneurs focus on their exit or rate of return--yet that's the key.

Be honest and up front about your business

If you do head out to find an angel, the smart approach is to be honest and realistic, whether you're describing valuations, risk-rewards or your company's competitive set.

Don't forget: Angels are investors who typically have started and sold companies themselves. They've truly been there and done that.