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Angel HornIn literature, angels are often depicted as messengers who serve and assist God. They also perform other tasks, such as tracking human’s behavior, acting as guardians and even battling demons.

In the business world, an angel investor can play a savior role, as well. Typically, an angel investor is a wealthy person willing to invest in a business. Contrary to bank loans, the usual investment made by an angel does not need to be repaid. However, that does not mean the angel investor does not have any expect a return on their investment, or ROI.

For example, said Steve Smith, head of California-based Growth Source Consulting, an angel investor “will probably want some level of participation in the business.” Therefore, he added, it’s imperative for the small business owner to be certain they share same similar business philosophies with the investor.

Other matters for the entrepreneur to consider include ensuring they have performed their due diligence about the potential investor. That includes networking with other business owners to decipher the experiences others might have had with that investor.

“Get recommendations about angel investor groups whose goals align with yours,” cautioned Smith.

Before signing on the dotted line with an investor, the wise business owner should have a clear understanding of the role the investor wishes to have in the operation of the entity. Do they expect a daily role in the running of the operation or will they content with being a silent partner?

Smith also advises the entrepreneur seeking angel investing not to get star-struck by the dollar signs without understanding the contract describing the investment. “You need to have a thorough understanding of the terms of the agreement. Bring in a CPA or attorney, whomever you need to help you so you’re comfortable with the arrangement,” he said.

And just how does an entrepreneur know it’s time to consider collaborating with an angel investor? Smith says the answer is clear: “The primary time to consider seeking an angel investor is when a business owner sees evidence their business model is approaching expansion. When the only thing holding your company back from expanding is capital,” is when an angel investor might just be the answer to your prayers, concluded Smith.

Tami Kamin Meyer is an Ohio attorney and writer. She tweets as @girlwithapen.
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