Forums: Discussions for entrepreneurs and small business.

I have a mock-up for an ecommerce directory site. It would be free to use, supported by advertisers and affiliate programs. Optional (free) membership would allow personalization and socialization features. I have shown this to a few family members and business associates, receiving positive feedback in terms of the feasability, ease of use, potential market and uniqueness. Prototyping would be the next step in developing the technical side and could be done with minimal resources - but faster, of course, with some investment dollars. I have yet to explore the question of protecting the idea.

My questions are about Angel Investors:

1. Will they invest prior to the prototype stage?
2. I would want to take some of this money out to give myself the financial freedom to devote time to the business. Would this be done as an equity buy and seperate funding? Is this common?
3. Do non-disclosure guarantees protect the entrepeneur when presenting?
4. Should I look into patents, etc. before going to AIs?

Thanks

BigAl,

Angels are as diverse as your questions. I have worked with Angels that make an investment simply on their belief in the entrepreneur, regardless of the business. I have worked with other Angels that are all about the numbers.

From my experience, the answers to your questions are:

1. Some Angels will invest pre-revenue (prior to prototyping), but not many - but this too is changing, and more Angels and Angel Groups are moving to earlier and earlier stage investing.

2. Your compensation would be drawn from the company, in my experience. Angels will expect that you take some money to "survive on", but not so much money that you "thrive on". The goal of the investor is to sustain the business (which is mostly you) until it can be self sustaining, then profiting, then thriving.

3. NDA`s and other agreements offer protection. But be forewarned they are simply a tool used to enforce confidentiality when there is a breech.  NDA`s are more of the guidelines to settling a breech after the fact, then it is in preventing a breech in the first place. Make sure you deal with Angels that you know and trust - that will put you in a better position. Absolutely put an NDA in place also.

4. PPA`s are inexpensive and can be valuable. The more momentum you have in your business before you seek funds, the better. If nothing else, you will have a better understanding of what you are doing and will be able to speak with investors more eloquently on the subject.

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Mike Michalowicz
Author of The Toilet Paper Entrepreneur