Growthink Advises Entrepreneurs to Raise Money from Angel Investors in 2012

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According to Dave Lavinsky, co-founder of Growthink and an authority on entrepreneurship, 2012 is a good time to be raising money from angel investors.

Growthink has released a recommendation to entrepreneurs seeking capital: raise money from angel investors.

According to Dave Lavinsky, co-founder of Growthink and an authority on entrepreneurship, 2012 is a good time to be raising money from angel investors.

As Lavinsky explains, “Recently, the National Venture Capital Association announced that the amount of venture capital funding grew 22% from 2010 to 2011. However, when I dug deeper into the data, I found that the lion's share of this funding went to later stage companies -- companies who have already raise previous rounds of venture capital, have revenues, and are looking to grow further before being acquired or going public.”

“In fact, the NVCA's numbers showed that in 2011, venture capital investments in seed companies or startups declined 48% versus 2010. To me, this means that venture capitalists are now less willing to bet on higher risk, earlier stage companies,” Lavinsky says.

According to Lavinsky, early stage entrepreneurs who want to raise equity capital should rely more heavily on individual or "angel" investors. As Lavinsky explains, “While angel investors have always been a huge source of early stage equity funding, they are now more important than ever.”

As Lavinsky explains, there are 3 critical issues to consider before pursuing angel investor funding.

1. Funding Requirements

Lavinsky asks, “Can you make significant progress with your business for less than $1 million?”

“While I've seen companies raise more than $1 million from angel investors, the average angel investment in a company is only $338,400 according to the Center for Venture Research,” Lavinsky says.

2. Ownership

Lavinsky asks, “Are you willing to give up equity in your business?”

According to Lavinsky, “Consider this important yet simple mathematical fact: 100% of nothing is nothing. And without the capital, your company may be worth nothing. As such, it is my experience that a small piece of a big company is better than a large piece of a small company. For example, a 10% piece of a successful company (perhaps a $10 million company) is twice as great as 100% piece of a small company, perhaps a $500,000 business.”

As Lavinsky explains, “Equity investors (such as angel investors) want you, the entrepreneur, to maintain the lion's share of your company's equity, since they know it will give you the motivation you need to work really hard and make the company a huge success. In general, you should expect angel investors to want 10% to 35% of the equity of your company.”

3. Perseverance

Lavinsky asks, “Are you willing to kiss a lot of frogs?”

According to Lavinsky, “The process of raising angel funding includes a lot of what I call “frog-kissing.” That is, you need to speak with a lot of individuals in order to find the few that will write you checks. It can clearly be done, as tens of thousands of entrepreneurs raise angel funding each year, but you will need to invest time and meet a lot of people in order to raise the funding.”

“Few things are more exciting than building a company from nothing to a thriving enterprise. Doing so nearly always requires a significant cash investment. Unfortunately venture capital firms are no longer making nearly the number of such investments as they once did. But angel investors are. And if you're an entrepreneur seeking funding, you should start speaking with these angels now,” Lavinsky says.

About Growthink

Growthink, Inc. is a leading provider of entrepreneurial consulting services. Growthink has also developed several training products and tools for entrepreneurs, including its best-selling business plan template. Growthink has also developed a capital-raising membership site called GrowthinkUniversity.com, which teaches entrepreneurs how to raise capital. To learn more about Growthink's products and services, call 800-506-5728.

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