Older form of backing for your invention has merit, but plan well.
I know, you want to read about angel finance, and that’s what I want to write about. But be patient while I tell you a bit about crowdfunding first, because that’s what most inventors have recently dreamed of as a promising means to finance their ventures.
The first dedicated crowdfunding platform was in 2000. The process became popular as we now know it around 2008 when Indiegogo began, and 2009 when Kickstarter began. Tales of people throwing money at promising inventions circulated quickly. Obtaining financing from people who didn’t expect an arm and a leg in return seemed too good to be true. But as we all know, there is no such thing as free lunch. And while it is possible to raise a substantial amount of money through a crowdfunding campaign, it isn’t highly probable.
A few facts: Kickstarter’s and Indiegogo’s overall campaign success rate is said to be about 35 percent. Of the 172 sites that I counted, some of them have success rates in the 10 percent range. The average amount of money in the success range is about $15,000. Successful projects start with early funding percentages. Those who achieve 35 percent of their goal in the first week are said to have a better than 90 percent chance of reaching their goals.
Read up on Crowdfunding
The main reason for the lackluster success rates is failure to lay effective groundwork. An obvious step is to read a lot about the subject. Amazon.com offers more than 50 books on crowdfunding. Most of the books imply success in their titles and leave us wondering which books to buy. One title, “The Crowdfunding Myth,” caught my eye, and I think I’d start with it in order to counter my inclination to excessive optimism. In any case, if you’re serious, I suggest owning and reading at least three books on the subject before even thinking seriously of embarking on a crowdfunding venture.
Another success tactic is to test a venture at a dollar goal that is not ambitious—less than $10,000 for example—and learn by doing. The universal ingredient for success, however, is a strong social media network. There is a direct correlation between the sites linked to your campaign and its success. But selection of the most appropriate platform is also important. It’s easy to find a list of the top 10 crowdfunders using Google. But investigating the merits of the remaining 162 might reveal a source that fits your project better than the more popular sources.
My point in the brief account above is to balance the glamorous and relatively new source of backing with the older form of backing known as angel funding. The term “angel” originated on Broadway. Wealthy individuals invested in plays and often saved the play when the producers ran out of money before opening. Thus, the phrase “You’re an angel.”
Angels like Start-ups
We hear less about angel backing these days, but it’s still around. And angels are always interested in projects that have the potential to earn a high return on investment. Most angel funding, however, is devoted to start-ups, not to licensing an inventor’s patent. And the angel often is a retired businessperson who will consider investing his or her own money and a limited amount of time in a start-up in exchange for a percentage of ownership of the business. Angels generally prefer to consider start-ups that are based on a category of product or service with which they have some experience. An angel who sold his or her manufacturing business is not likely to invest in a Broadway play but may be interested in a novel product that shows outstanding promise.
The stereotype of a 50- or 60something who is wealthy, bored after selling a business and seeking to reassert capability via a new venture is reasonable but often misleading. Angels are diverse individuals: young, old, men, women, bold, conservative, doctors, lawyers, tool and die makers, molders, electronic experts, and so on. And just as the princess had to kiss a lot of frogs before finding her prince, the inventor has to connect with a lot of angels before finding the one with whom he or she has a meeting of the minds.
To connect with angels, check out the following angel networks: Fundingpost.com, angelinvestmentnetwork. us, and activecapital.org. These are three sites that pop up early when searching Google for angel investor information. And you can also find individual angels in your state by Googling “angel investor (your state).” I found four such lists for Connecticut, where I live. Most were men, but female angels and entrepreneurs are on the increase. The angel’s travel distance can be a deciding factor. Angels usually want your business reasonably close so that periodic visits are not a burden. Always consider that angels are not dispassionate bankers. They are persons who have had their own success and want further adventure—something refreshing and exciting that they will enjoy seeing build from its embryonic state to an attractive organization. And you must want even more.