Book Review

Angel Financing: How to Find and Invest Private Equity

By Gerald A. Benjamin, Joel Margulis

Entrepreneurs searching for capital know it takes chutzpah to raise financial backing. Authors Gerald Benjamin and Joel Margulis illustrate their argument with a gripping anecdote about Florenz Ziegfeld, the Broadway impresario, who had an angel, Jim Donahue, backing his productions. In 1929, Donahue lost his fortune in the stock market crash. Donahue was so despondent that he threw himself out his office window. Ziegfeld, a true entrepreneur, didn’t let misfortune deter him. He wrote a note to Donahue’s widow saying: “Just before your husband fell, he promised me $20,000. In three days, the money arrived. That’s the unwavering determination it takes to raise capital.

Benjamin and Margulis have no magic answers, but plenty of sound advice for entrepreneurs. They point out that the amount of available capital is dwindling for three reasons: 1. start ups need more money than in the past; 2. traditional capital and financing has diminished; 3. more competition for start-up capital. Government studies show that about 61 percent of entrepreneurs are seeking alternative financing from angels.

Angel Financing offers valuable insights for entrepreneurs. The book outlines practical strategies for start up owners, such as not judging angels solely on their net worth. The authors warn that sometimes with large incomes, can come big debts. They recommend finding angels who are a more appropriate fit for start ups in their interests and willingness to make a company a success.

The idea angel investors set aside a portion of their private equity portfolio for high-risk ventures. This discretionary income sets the angel investor apart-- even from the merely affluent.  

The Catch-22 for entrepreneurs is meeting angels who cherish their privacy. Angels only tend to surface occasionally to do deals which makes networking difficult for start up owners. The authors note that according to Forbes, there are only 300,000 private investors across the country who are active angels seeking high risk deals.

Angel Financing outlines in Chapter Three the best ways to locate angels who are worth accessing. Cass Apple, former president of Sierra Designs and founder of Digital Records Corporation, felt motivated to turn to an angel instead of an institutional investor because of the willingness of angels to commit large stakes in individual companies based on the understanding that angels, in turn, want a voice in management. Speaking to the San Francisco Business Times, Apple put it this way: "The typical venture capital firm wants to get involved only when you are further along-- and for more money than you need. The primary advantage of going with individuals is that it is much quicker and you can tailor the details of the deal to the individual investor."

Apple also valued early funding from someone who added brain power, plus the perspective of an experienced partner. Such an early investor, he concluded, could help develop a marketing strategy as the company prepared to bring its product to market.

He realized another advantage of dealing with angels: Despite the healthy return for the angel from a successful start-up, the angel would exercise less control at the beginning than venture capitalists. 

Most entrepreneurs know there’s little doubt that private investors are worth accessing, but start up owners tend to be inefficient in finding, attracting and building relationships with angels. In Chapter 9, Benjamin and Margulis explain in detail how to build a database of angel investors. Many start up owners spend countless hours and make hundreds of presentations searching for private investor

The authors share proven strategies to make entrepreneur’s search more fruitful. In short, they explain how to identify these people, establishing contact and managing relationships with them throughout the funding process.

It’s always a challenge for entrepreneurs to find private equity. Reading Angel Financing: How to Find and Invest Private Equity can offer entrepreneurs a strategy that might make their search more efficient and successful.

By Frank Szivos, Angel Investor News Editor

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