Within the past week I have learned about two new programs to help entrepreneurs raise funding from individual or angel investors.
Will entrepreneurs successfully raise money with them? Yes.
Will they work for you? Probably not.
Let me explain.
It is every entrepreneur's dream to submit a business plan online and have investors magically appear and write them big funding checks.
But unfortunately, this is just a dream. It is NOT how investing work. Sure, it works sometimes, and perhaps one out of every thousand entrepreneurs who tries is able to find investors this way. But I'm not willing to bet on 0.1% odds.
There are two core reasons why this form of fundraising doesn't work. The first is that it's just too competitive. When investors only choose one investment after reviewing thousands, your chances of receiving that investment are small. Even if you are clearly the best investment, with all the clutter, you'll rarely win.
Secondly, there are too few angel investors that look at deals that are posted online. And as a result, few deals are funded. In fact, these investors (the ones who consider themselves angel investors and actively look at deals) represent only a tiny fraction of the total market for angel investors.
Which leads me to the key word in raising angel investments. That word is "latent." Here is how "latent" is defined:
1. (of a quality or state) Existing but not yet developed or manifest; hidden; concealed.
2. (of a bud, resting stage, etc.) Lying dormant or hidden until circumstances are suitable for development or manifestation.
So how does "latent" refer to fundraising? Because "latent angel investors" are far and away the BEST type of angel investor there is to fund your business. There are MILLIONS more latent angel investors than other angel investors, and they receive zero to few other funding opportunities. So your chances of raising funding are hundreds of times better.
So what is a "latent angel investor?" A latent angel investor is an individual who has the interest and ability to make an angel investment, but doesn't actively seek to make angel investments, nor walk around thinking of themselves as an angel investor.
Importantly latent angel investors represent the vast majority of the 265,400 individuals* who funded privately held companies last year (* according to the Center for Venture Research).
Latent angel investors are the best potential investors in a company since they have the funds to invest, but aren't bombarded with potential deals (unlike angel groups and venture capitalists who are constantly bombarded).
So, who are latent angel investors?
Most latent angel investors are current or former entrepreneurs, successful executives, or otherwise wealthy individuals. Importantly, since they are often individuals with extensive business experience who have operated and owned successful businesses of their own, they can often provide more value to your business than just the money they invest.
How many latent angel investors are there?
According to TNS Financial Services, there are 9.3 million households in the United States with a net worth exceeding 1 million dollars. Three million of these households, according to Merrill Lynch & Co. and Capgemini Group, have investable assets of at least $1 million, excluding their primary homes.
In summary, in the United States alone, there are 3 to 9.3 million latent angel investors, which fortunately, is a HUGE number.
How do you find latent angel investors?
You can find latent angel investors via:
2. Networking at events and through multiple degrees of separation
3. Focused Prospecting
Fortunately for entrepreneurs, angel investments are growing rapidly. According to the Center for Venture Research, last year angels invested $20.1 billion in early stage private companies, representing a 14% increase over the previous year. Once again, this was primarily fueled by latent angel investors.
The good news is that latent angel investors are all around you. But you're not going to find them by submitting a business plan online. Which is a good thing...since your plan won't get lost in the clutter of business plans submitted by naïve and lazy entrepreneurs.