Inventors Seeking Investors

September 21, 2009 | Posted by Victor

Most inventors are looking for investors to help them with their invention. Some inventors go to friends and family while others seek the more conventional route of Venture Capitalists (VC’s) or Angel investors.

Unfortunately the later 2 groups have scaled back their funding during this financial crunch and crisis. For example, in 2008, VC investments dropped by 8% and Angel investments were down 26.2%, according to the National Venture Capital Association and the Center for Venture Research.

On a more positive note, both groups are still on the lookout for solid investments. The key is knowing which one to target to maximize your chances of success. To better understand which one is best for you we will help you to understand the difference between the two.

ANGELS

Generally, Angels invest in early-stage companies. About 50% of their deals are in the start-up stage as compared to less than 10% for the VC’s. Angels are traditionally high-net-worth people who invest their own money in companies with high growth potential. They really to be convinced that the venture you are proposing is sound, growth oriented and profitable.

VENTURE CAPITALISTS

VC’s generally take less risks than Angels. They invest in later-stage companies. They typically look for companies that have demonstrated revenue streams and have proven the commercial viability of their product or technology. VC’s are full-time professional capitalists who raise large sums of money (perhaps $5 million to $1 billion) from institutions like pension funds, university endowments, insurance companies and of course ‘super rich people.’ They collect they funds and turn around and invest the money into companies with high growth potential. VC’s will invest larger amounts than their Angel counterparts.

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HOW MUCH DO THEY INVEST?

As mentioned above VC’s will invest larger amounts of money. Generally they don’t like to invest less than $5 million but in some cases will invest $1 million. They look for strong companies in need of very large capital infusion. Angels however might invest as little as $25,000 in a project. The hardest money to get for an inventor is usually the first $25,000 to $1 million which falls under the Angel umbrella. In many cases, inventors may secure an Angel investor, start up the business and at some point in the future look for VC’s to help. Both investors work hand in hand.

Presently both Angels and VC’s are more cautious about who and how much they are willing to invest. It has become a tougher environment for inventors to secure funding. The investors are looking for an idea that is truly unique and stands out.

Based on the type of invention you have, your investment may be as low as $100 or possibly as high as $100,000 or more. The low end is based only on what an inventor might invest to start their project and then decide  to stop. The high end is based on what an inventor might be expected to invest if their product is not high tech or very costly to produce and sell.

Bottom line, if you don’t have money to burn (and who does?), seek investors that can possibly help you.

Categories: Financial Resources, Invention 101, Inventor | Tags: business, Financial, invention, Inventor, money, success, Tips | 5 Comments »

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