By Fernando Berrocal

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Some wealthy private investors are known as angel investors.  Their investment specialty is funding startup businesses in return for equity.  Angel investment primarily appeals to American business owners, but it can also spark interest from founders of foreign startups.

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One of the most common queries posed by non-resident foreign entrepreneurs is how to secure angel financing from American investors.  Even in this day and age of globalization and digital transformation, it is still very difficult to such founders to secure funding locally. There are countless instances to support the fact that startups may prosper anywhere. The fundamental factor?  Most angel investors make their primary investments in their local communities. This is comparable to how venture capitalists (VCs) engage in private equity deals with businesses that hold significant growth potential–in exchange for an equity interest.  VCs typically look for investment possibilities in their local areas.

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So with these principles of angel investing in mind, the following question arises: why do angel investors prefer to do local investing? Most angel investors choose to invest in local businesses for a variety of reasons. Angel investors tend to behave in similar ways, and the opinions they express in the following points are widely shared.

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• Angels desire to relive the startup adventure. A lot of angel investors were, at one point in their business career, operating their own businesses. In some instances, they may still be leading an organization.  Their desire to relive some of these exciting, fulfilling experiences of their early entrepreneurial endeavors–without the associated hardships–can be what drives them to invest in brand-new businesses. If the business that the angel investor invests in is hundreds of miles away and they cannot witness it grow continuously, it is difficult to live that experience directly through it. Angels want to be immersed in the businesses they fund. 

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• Angel investors invest through referrals. You must be aware that a large portion of the investments made by angel investors are in businesses that were recommended to them by themselves, acquaintances, or contacts they made through networking. These individuals they met by networking could be while engaging in a formal business talk at a meeting, studying, or working. In each of those situations, those investors make investments in people that they get to know or who came highly recommended. It's important to remember that you shouldn't hunt for these investing chances by yourself. Therefore, it is unlikely that an angel investor will make investments abroad unless they have referrals from sources outside of their community.

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• Angel investors don't pursue investment returns. Even though every angel you interact with will probably claim that they want to make money, this is typically not their main goal. Entrepreneurs seeking funding sometimes have a false belief that if they could just persuade a possible angel investor that they are the next Spotify, the angel would assist them. In truth, angel investors rarely search for investments to discover the next Spotify.

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They have experience and are far more grounded in reality than that. Instead, they wait for possibilities to present themselves before assessing them based on a variety of criteria, including the founding team, the concept, or the possible reward.  To put it another way: they have no way of knowing if your business–or the one down the street–is the next big thing. Therefore, if all else is equal, they will favor the local startup (for the reasons mentioned above).

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• Angels favor "local" business owners. Angel investors have some advantages, including one very rewarding benefit: fostering trust and goodwill in their local neighborhood. Making investments in a few locally-based businesses always introduces a person to a network of wonderful individuals that you may not have met otherwise. Therefore, they have to be receptive to meeting new people–and building solid business relationships with them.

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Clearly, there are barriers for potential business owners who don't live in an area with active angel investing. This is a frustrating reality as a particular combination of components is required to have a strong entrepreneurial ecosystem; one of these components is angel investors. However, they often come from established business owners. Angels are typically former successful business owners; but when there is money available to explore their ideas, entrepreneurs are born. We can only advise overseas business owners to focus on bootstrapping (growing the company with minimal startup capital) rather than becoming obsessed with getting access to angel funding. Nowadays, it is considerably less expensive to experiment with software businesses than ever, and there is no clear proof that you must still require angel funding.

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