How to Attract Angel Investors
In 2004, new magazine launches broke the 1,000 barrier for the first time
in six years with 1,065 new publications birthed. Media bankers are bullish
on 2005’s outlook for M&A activity, particularly in the b-to-b sector, noting
that revenue and profit growth are finally in line with investor expectations.
So if you’ve been itching to launch a magazine now may be a good time to
take that cocktail napkin out and turn those scribbles into a proper business plan.
And what’s a business plan without capital? There are a range of options
here, from self-funded to angel investors to institutional money, but if
you want to stay relatively independent, angel capital might be the way to
"I didn’t even think of going the venture capital or publishing house
route because I wanted to do this as an independent venture which means
seeking out private equity," says Carol Decker, founder and CEO of Western
Interiors and Design, who raised more than $10 million solely from angel
investors. Yet seeking capital from this group is not as informal as many
believe. If approached in a manner similar to the expectations of
institutional investors, an entrepreneur may find that, at the very least,
they’ll have a seat in front of a desk, if not a formal offer.
Who’s a Likely Angel Investor
Defined loosely, angels can include friends and family, but more often than
not they’ll be wealthy individuals. According to Jordan, Edmiston Group, Inc.
managing director Scott Peters, angels investing in the magazine business do
so out of a personal passion for the medium itself or for the topic a magazine
covers. "There’s an affinity element that is key."
Given that magazines typically need a substantial amount of capital to get
off the ground;anywhere from $3 million-$20 million, though many have done
it for much less;entrepreneurs will only get so far with friends and
family. The bigger chunks will come from successful business people. "You
end up having to go after very sophisticated, high net worth individuals
who will require the same level of due diligence as a venture capitalist
would," says Peters.
"They are extremely successful, savvy business people," says Decker.
"Believe me, the due diligence was conducted properly. They know the hard
work it takes to start a company."
Be Buttoned Up
Magazine entrepreneurs inevitably need a business plan and shouldn’t
expect to pitch an angel investor without one. "The investor needs to know
the entrepreneur has thought through all this stuff," says Peters. Key
components of the business plan should cover market research, competitive
analysis, and a detailed financial plan that outlines how much money needs
to be raised, how it will be spent and how the magazine will make its
benchmarks. Care should be taken to confirm the full amount needed to be
raised. "There are so many magazines that are funded up to the first $1
million-$3 million that they don’t have a strategy on where to go next,"
Development projections should also include how much any investment will
be worth over a specific period of time. This will be key in determining
an exit strategy.
Have an Exit Plan
"You need to have an exit," says Peters. "How do the investors get the money back?
Unless you’re able to show them this you’ll never get a dime." Decker hired an
attorney who drew up the proper legal documents that outlined the
structure of the official offer. All of her deals were struck with the
same structure in place. "They bought into a five-year or more plan," she
says. "We could flip the product now, but we don’t want to do that. It
goes back to ROI." The 200,000 circulation Western Interiors launched in
Typically, entrepreneurs should figure out what the business might be
worth when it starts to make money;usually five to seven years out. A
standard multiple is 10-times EBIDTA, so if a magazine is making $2
million in year five it might be worth approximately $20 million. Armed
with this information;and the amount the entrepreneur has determined needs
to be raised;an investor can be invited to contribute X amount with a
certain return percentage.
What Investors Want To Know
they should invest and what their return might be.
1. How much money does the company
need to reach cash flow break-even?
2. How long will it take to break
3. How much money do I need to
invest and how? Lump sum or staggered?
4. What is the valuation of the
5. What is the exit strategy?
6. What is the exit value?
7. What is the risk?