David Harkins

David Harkins

Dr. David L. Harkins is a social scientist researching the human experience in systems and culture. He is an experienced executive coach and consultant, passionate educator, and keynote speaker. Through his teachings, inspiration, and guidance, he helps individuals and organizations identify and connect with their potential to make a meaningful difference in their communities.

How Angels Source Entrepreneurial Investment

This post is the first of seven posts about angel investment in entrepreneurial ventures.

There are many moving pieces when growing a business, and entrepreneurs have their hands full tackling the day-to-day business functions. As an enterprise grows, the operational pressures invariably increase and so often financing the growth of the firm from existing revenue streams become a challenge. When this is the case, entrepreneurs often seek outside investment from “angels” to provide the funds necessary for the next stage of growth.

The term “angel” is believed to have its roots in the arts and refers to those early benefactors of somewhat risky theatrical or artistic ventures (Amis & Stevenson, 2001). An early stage investor of an entrepreneurial endeavor is indeed an angel for the entrepreneur who might not otherwise be able to secure financing for business growth. Angel investors are often former entrepreneurs who understand the unique challenges of start-ups (Amis & Stevenson). Their past experiences and successes make them well suited to invest in other entrepreneurial ventures.

Each angel investor’s background and expertise provide a unique foundation for the types of investments they may seek. As a result, most will have a structured process and procedure for developing their deal flow. This approach to identifying and evaluating entrepreneurial projects in which to invest is often called “sourcing” (Amis & Stevenson, 2001). While there are likely as many approaches as there are investors, many will follow a process similar to the outline below.

1.   Identify the Ideal Investment

Most angel investors will develop a one- or two-page fact sheet that identifies the type of investment they are willing to consider. This fact sheet outlines the key components of a deal including investment size, market opportunity, sector focus, and the experience and prior successes of the management team among other things (Amis & Stevenson, 2001). Because of the risk associated with an early-stage investment, it is highly likely the investor will want to be involved in the critical business decisions and therefore will want to invest in local companies (Brush, Edelman, & Manolova, 2012). Moreover, the investor will likely seek deals with a business type, or within an industry sector, where he or she has prior experience and success.

It is important for you, as an entrepreneur, to be aware of those individuals in your local area who have successes with a similar business or successes within your industry. These people have built credibility through their ventures and may well be possible investors in your entrepreneurial venture.

2.  Network for Possible Opportunities

As a successful business person, an angel investor is likely to have a broad network from which they will look for potential investment opportunities. Many will openly share their desire to invest (and their “ideal investment” fact sheet) with those in their network. For most of these investors, their networking circle will include bankers, lawyers, accountants, venture capitalists, as well as other successful professionals who may have a history of investment in startups and small businesses (Wiltbank, 2005). An investor typically has high trust in his or her network and will rely upon these individuals when identifying, narrowing, and choosing entrepreneurial investment opportunities.

Keep in mind that some research suggests investments made in ventures found outside of an investor’s trusted business network (e.g. identified through a friends and family network) may well be less successful and could have a higher possibility of failure (Wiltbank, 2005). It is important, then, for entrepreneurs seeking investment to also network with bankers, lawyers, accountants and other professionals, as this may open more doors for possible investment. Networking outside of family and friends will increase the likelihood of an objective investment and should prevent harm to familial and personal relationships, which will sometimes occur when entrepreneurial ventures fail.

3.  Prospect and Due Diligence

A variety of possible deals will materialize when an investor’s network is activated. The investor is faced with the task of sifting through those deals to find the opportunities that best match his or her ideal investment (Amis & Stevenson, 2001). Each angel is likely to have a highly individualized process for evaluating deal opportunities. In addition to financial due diligence, many will look closely at the venture’s structure, policies and cultural characteristics as it relates to the entrepreneur’s plan (Brush, Edelman, & Manolova, 2012). These factors are likely to predict the venture’s strategic readiness to accept the investment and scale appropriately to achieve the desired success for both the entrepreneur and the investor.

Entrepreneurs seeking investment should have already evaluated their company’s people, processes, and technology, as well as their organizational culture, for those improvements needed to ensure readiness for growth and expansion. Specifically, the venture must be strategically ready to accept funding and positioned ready to scale when investment occurs. (Brush, Edelman, & Manolova). The self-evaluation and the resultant activities deployed to demonstrate readiness may not ensure outside investment; however, it will show a potential investor that you, the entrepreneur, have the requisite skills and abilities to make the hard decisions necessary to grow the business. These actions may help you get funding at a later date.

Angels may engage in these and other steps in preparation for investment in entrepreneurial ventures. If you are an entrepreneur searching for early stage funding, it is helpful to consider how an angel investor may develop his or her deal flow. This knowledge will help you better identify possible angels who might bring relevant experience to your business and prepare your venture to secure outside investment successfully.



Amis, D., & Stevenson, H. (2001). Winning Angels: The 7 Fundamentals of Early Stage Investing. London: Pearson Education.

Brush, C. G., Edelman, L. F., & Manolova, T. S. (2012, April – July). Ready for Funding? Entrepreneurial Ventures and the Pursuit of Angel Financing. Venture Captial, 14(2-3), 111-129.

Wiltbank, R. (2005, October). Investment Practices and Outcomes of Informal Venture Investors. Venture Capital, 7(4), 343-357.


Featured Image Source: Getty Images, Westend61



8 thoughts on “How Angels Source Entrepreneurial Investment”

  1. I wonder how the situation has changed regarding the importance of the “investor’s trusted business network” and the 2005 article that predicted higher failure. In age of crowdfunding, it seems that one’s reputation and presentation are more important (and how cool the idea is). I would venture (ha) to guess that all those people aren’t really all the relevant anymore. At least based on my search in my blog, I didn’t see a lot of emphasis on networking through such contacts as key to getting funding (http://blog.medstudentlearning.com/2017/05/angel-funding-going-to-source.html)

  2. You make a good point. There do seem to be a higher number of “investors” through crowdfunding sites to help get new products off the ground. But for all of those investments, how many of the products get beyond the initial prototype stage? Moreover, how many ideas never get investment through crowdfunded sources because the crowd does not see value, but might be a great idea with proper guidance? I think this is where trusted networks still work. This approach applies in particular if an investment needs an experienced entrepreneur/Angel to help guide the new opportunity.

    Crowdfunding does not offer the same level of commitment and engagement that a hands-on Angel investor will offer. Sure, a venture might get the money, but financial investment is likely not the only thing an entrepreneurial venture needs. As such, I would also argue that the date of the sourced article is immaterial to the rate of failure. A trusted business network can indeed make the difference in finding and matching an investor that is a better fit for the entrepreneur. The experience and involvement such an investor brings should decrease the risk of failure. I do not believe a crowdsourced investor can offer the same.

    I’ll take a look at your post for additional insights soon.

  3. Excellent explanation of sourcing and all that it entails. I have to agree with you about crowdfunding and commitment. There can be a lot more involvement from an angel than just money. It seems within the angel investing community there is a desire to help a start up. Whether it is through mentorship, guidance, training or connections many angels have additional goals in addition to a financial gain.

  4. Thanks for a great detailed outline for Sourcing. Networking is an amazing tool to any business. I liked how you stated in #3 “A variety of possible deals will materialize when an investor’s network is activated.” What this says to me is that we can just be collector’s of people and information, we must do something with that information. Interact with our network!

    Great post,


  5. I like the idea of the fact sheet. An investor will say to an entrepreneur, “find your niche”, from time-to-time. They aren’t saying this because it’s just something to say…or they don’t really believe it. They say it because they realize the importance of knowing an industry very well. I listen to entrepreneurial podcasts all the time and I hear story after story about how someone couldn’t raise capital because the investor they were pitching to didn’t understand their industry. By having the fact sheet, you can save yourself some valuable time…and the entrepreneur as well. One investor from a podcast I listen to has an email account with a list of things he won’t invest in to deter folks from reaching out to him. One thing he won’t invest in (which seems odd) is anyone who graduated YC.

  6. Hi Alex,

    I, too, like the fact sheet idea. And I also believe, like you, that thoroughly understanding the industry in which you are playing offers a huge advantage for the entrepreneur, but also for the investor. It’s not smart to seek investment from someone who doesn’t have some knowledge of your industry.

    I also listen to a number of podcasts. Which are your favorites?

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