Working with Angel Investors ("Angels")

If you're a cash-strapped movie producer looking for a wealthy investor to finance your film, you may want to look for an angel investor. Very few start-ups will receive an investment from an angel. But for the right project, this type of capital can fill the gap between that money you've gotten from friends and family and the venture capital that you hope to secure down the road.

So who is an angel exactly? An angel is a wealthy individual willing to invest in a project at its earlier stages in exchange for an ownership stake, often in the form of preferred stock or convertible debt. Angels are considered one of the oldest sources of capital; the term itself, by most accounts, comes from the affluent patrons who used to finance Broadway plays in the early twentieth century.

Little is known or understood about the angel market, largely because it consists of individuals who make investments quietly. That is slowly changing, thanks in part to two organizations, the Angel Capital Association in Vienna, Virginia, and the Angel Capital Education Foundation, which bring together angel groups to share best practices.

Whether you decide to seek an angel investment depends on your personal management style and the long-term plans for your company. Unlike a bank loan or other types of debt financing, equity capital (whether it's an angel investment or venture capital) gives someone else an ownership interest in your company. Many angels are successful entrepreneurs who have cashed out and now want to help others just starting out. While their expertise may be welcome, you need to ask yourself—especially if you're used to being in control—whether you want someone looking over your shoulder and making decisions for your company.

Keep in mind that an angel makes an investment in a high-risk opportunity (such as Blair Witch or Juno only when a return is expected. Angels typically look for "scalable-repeatable" projects (think John Hughes, Iron Man or Vampires) that have the potential for great growth and a clear path toward profitability.

If your production company has no great plans to expand or enter new markets (think affiliated products and international markets), an angel investor simply won't be interested. Because angels hope to make money by taking equity—usually preferred stock—in your company and realize a large gain when the company is sold or goes public.

In other words, if you plan to make only one film and the film has no potential to be repeated or spun off, don’t waste your time pitching angels.