Inside Secrets to Angel Investing, Chapter 4 Excerpt

The Business Lifecycle: And the Capital Plan

You’re almost done with your excerpts and we hope you are gaining some insight into the world of private equity investing. This excerpt is free and is intended to provide you with an introduction to the concepts held within the fourth chapter of this book.

The economic impact of a business as it moves through the Business Lifecycle is often determined by the goals and aspirations of the founder(s). From a micro-economics perspective, the Business Lifecycle is a model that describes a company which begins with an idea, then builds to a profitable business by providing value in the local market it chooses to serve. In this chapter, you’ll learn much more about the economics of the Business Lifecycle including its impact, the funding options of different types of business at different stages, the specific value of angel investors at the different stages and the role of venture capitalists in the lifecycle/funding process.

Business Lifecycle Described and the Economic Impact

The five stages in the Business Lifecycle are seed, startup, early stage, expansion and later stage. In the book we explorethe major categories of firms: Lifestyle, Market Participant, Middle-Market and Market-Maker Firms, the latter two fall within the Entrepreneurial Endeavors category. Middle-Market Firms bridge the gap and enable the occasional Lifestyle and Market Participant firm to become a worthy investment because they have reached certain revenue and infrastructure stature, and with an influx of capital they can scale to be large, market dominant firm. Each category is described in detail according to its reason for being, its goals, growth patterns, size, how it typically progresses through the four Lifecycle stages, and its economic impact. The growth of the business and the speed at which they achieve certain milestones is indicative of the business as a Lifestyle, Market Participant or Market Maker. This information is necessary to understand the companies in which you’re considering an investment, so that you’ll know what to expect during your relationship with that company.

Briefly, Lifestyle Firms are those which are created to produce a reasonable living for their founders. Market Participants are usually Lifestyle firms but they simply replicate an existing model…another fried chicken place or dress shop or drycleaners.  Middle-Market Firms are those that may initially be a Lifestyle Firm, but grow over time and expand to reach revenues of $20 to $50 million and employ several hundred people.  They may have started as a Market Participant for the sole purpose of providing a good living for their family (Lifestyle), but something unique about them caused them to grow beyond being just for a lifestyle, often this comes from expansion through franchising or multi-state to national operation.

Market-Maker Firms, on the other hand, strive to introduce a product or service that will revolutionaize the market or have a dramatic impact on the buying behavior of the general public or the segment it chooses to serve, surpass the $50 million mark in under 10 years and will ultimately become a Fortune 1000 company. Each will go through the stages of the Business Lifecycle, but the outcome and transition from one stage to the next will vary according to the type of firm.

Depending on your Investment Model and your wealth strategy, there may be appropriate times to invest in companies at any of these stages. Knowing the stage and classification helps you gauge your risk and the anticipated ROI. Traditionally those firms that were the kind of company that was poised to move beyond Lifestyle to Middle-Market have been out of reach and out of sight to most of private investors because they didn’t fit the high growth angel model. They may have reached $5M in sales, but took much longer than a Market Maker type company so Venture Capital and Angel Investors usually aren’t interested.   And they are too small for Private Equity firms looking to invest in Middle-Market companies.   Fortunately for you as someone eager to learn more about this type of investing, those companies can use the new RegD 506c process to raise capital from individual investors.   You get the benefit of owning a piece of a company that has a proven track record, tangible assets, and potential for accelerated growth with the infusion of capital, and an exit that is more predictable through merger and acquisition and private equity fund roll up.  These are the types of companies we will offer for your consideration once you have indicated an interest and complete the SEC mandated verification process.

As a side note, you’ll enjoy reading in this chapter two fascinating stories: one on the history of entrepreneurism in the U.S. and its supporting statistics, and that of a once-small Entrepreneurial Endeavor known as Microsoft.

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Funding Options of Different Types of Business at Different Stages

The information in Chapter 4 covers the four primary categories of funding: Bootstrapping, Angel Investment, Venture Capital and Commercial Lending. A diagram of capital sources according to each stage of investment is provided as a reference within this chapter.

All businesses start out with “Bootstrapping” and will eventually call upon the many different types of commercial lending through the course of their growth and development. There are five ways to fund companies that qualify as “Bootstrapping” which are explained. The goal of bootstrapping is to take the company as far as the founders can before seeking outside investment. To you as an investor, it is important to understand what sacrifices the founders have made that may not be documented as straight cash infusion.

Venture Capital becomes a viable option for funding when the company moves beyond Start-up into the early stage and show signs of being an emerging growth company. In the book we explore the “rule of thumb” for Venture Capitalists today, and on the kind of entrepreneur in whom you want to invest to help grow their business. More information on the role of Venture Capitalists is provided in the last section of this lesson, and covered thoroughly in Volume II of the Learn to Be an Angel Investor Series.

Commercial Lending sources of funds are your traditional lenders who may offer a line of credit, asset-based lending or receivable financing. This source rarely lends money to Seed Stage or Start-up companies, but there’s an exception to this rule. When a company is established and has a five-year history of profits, they can shop for loans and competitive rates. Until then, they must accept that to qualify for money from an institutional lender, they must illustrate a means to pay it back or be willing to leverage a qualifying asset to secure the note.

Specific Value of Angel Investors at the Different Stages

Angel Investment bridges the gap between bootstrapping and institutional funding. From the diagram, you can see that Angel Investing can cover a broad sweep of type and stage of business. This is in part because of the different types of Angel Investors as described in Chapter 1. Passive Angels will likely invest through a fund where their money is pooled with other angels and a managing director, screens and recommends the deals. A Professional Angel will get involved during the Seed Stage when the entrepreneur has the least amount of money to spend on services and the work done by the professional has the most value. We explore this further in the book.

As already discussed in in Chapter 1 (Angel Investing, The History, Definition, and Trends), the role of the Angel Investor is critical in the life of a business, and the U.S. economy. The capital they provide at the critical point of an early company’s growth and expansion is invaluable. If they are at all active, whether in the day to day operations or as a board member, they will bring valuable experience as well to that young Entrepreneurial Endeavor and the management team that may have never built a large business. Just like the lifecycle of any living entity, a business that intends to grow needs capital and resources. As an Angel Investor, you will need to understand the stage of the business, the investment participants to date and the candidates for the investment to follow. Most opportunities for private equity investment come in the form of private equity funds or direct investment in Start-up and Early-Stage companies. In the book this topic is explored deeper.

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We hope you have enjoyed this excerpt of Chapter 4. We are committed to your success in this learning cycle. If there is more information we can provide to you, please let us know. I can be reached at Info@


Karen Rands
Compassionate Capitalist
Managing Director of Kugarand Capital Holdings and subsidiaries
Membership Director for National Network of Angel Investors.

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About The Author

karen-rands-bioKaren Rands is the founder of Kugarand Capital Holdings, LLC ( For over a decade, she has taught entrepreneurs how to attract capital from investors and lenders, and high net worth men and women how to invest in early stage private companies. She has provided opportunities for qualified companies to meet and court qualified investors leading to the investment of over $35,000,000, growth of dozens of companies and the creation of hundreds of jobs. Through that she has interviewed, analyzed and observed and then applied that knowledge in ebooks, podcasts and blog reports. Now she is taking it to a whole new level by building a national network of investors that want be a part of the expected seismic shift in investment in the public markets to the private markets. High net worth men and women want their investments to be relevant and rewarding. Investing in an aspiring entrepreneur’s endeavor to help bring innovation to the market and create jobs, while creating wealth, just makes sense. It’s the win-win of investing. To learn more about Karen Rands, visit her bio page.

Disclaimer: Every effort has been made to accurately represent our products, their sources and their potential when applied by the student. Any information offered regarding actual earnings or examples of actual results can be verified upon request or the source can be made available. Purchasing equity in private companies is an extremely risky business. The information provided during the online orientation to Angel Investing is drawn from personal experience with Angel Investors and companies seeking funding, and from recognized authors and columnists, and is not intended to represent or guarantee that anyone will achieve the same or similar results. Each individual’s success depends on his or her background, dedication, desire and motivation. As with any business endeavor, there is an inherent risk of loss of capital and there is no guarantee that you will earn a return on your investment.

To learn more about how to buy Inside Secrets to Angel Investing, plus the 6 Bonuses that are included in your purchase, click here.

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©2005 Karen Rands & Kugarand Capital Holdings, LLC