Angel investors and venture capital firms represent essential funding sources for many early and growth-stage businesses. Angel investors are typically high net-worth individuals acting independently, or in a group, who make private investments in companies at early stages of business development. Venture capitalists typically provide higher levels of funding and focus on growth companies in specific sectors. Venture capital funding can sometimes provide a second round of capital following angel financing. In both cases, the investors typically take an equity stake in the company and exert influence through their ownership rights and Board representation. The due diligence process for securing venture capital funding is usually longer and more rigorous.

There are a number of common criteria that angel investors and venture capital firms seek in an investment. Investors consistently reiterate the importance attached to the quality of the entrepreneurs involved. A significant part of the due diligence process will focus on this aspect. A good business idea can only be successfully implemented by an excellent management team. The business model and the company's competitive position are also very important. A firm's ability to identify large markets and generate high margins also provide investors with confidence that the company can overcome risks associated with early growth.

Angel investors and venture capitalists will almost always require a comprehensive business plan. A plan also represents a critical internal document for management in terms of outlining business vision, capital requirements and operational goals. Investors will look to gain a clear understanding of the company from the business plan, including how much capital is required, how profits will be generated, the unique aspects of the company and its competitive advantages.

A business plan for equity raising purposes should contain the following information:

• Present capitalization structure providing details of current ownership;
• the amount and structure of the funding sought. The actual terms of the deal will be negotiated at a later stage;
• description of company background and its products and services. This should include a competitive analysis of the market;
• operational, marketing and sales strategies;
• detailed resumes of founders and key employees; and
• current and projected financial information and statements. Projections should be realistic and underlying assumptions clearly described.

As a guide, the business plan document should be around 25 pages in length, plus an Appendix, if required.

In addition to the business plan, company management should also produce an Executive Summary document that should contain key information for an initial submission. Management should also prepare an investor presentation in anticipation of meeting with capital providers. The presentation should be detailed but flexible enough to encourage questions and discussion.

An angel investor or venture capital firm providing capital to a business will likely have a significant impact on the success and development of the business. An entrepreneur should approach the relationship in terms of establishing a valuable partnership and the level of preparedness and quality of materials presented to capital potential investors should reflect this.