By David Worrell, Entrepreneur, November 2004

Wasden's affection for his investors comes with one caveat. Affinity investors could become a liability if the company's early sales appear to be artificially propped up by company insiders. "There's the misconception that early sales success comes from selling to investors only," laughs Wasden. "Fortunately, that's not [true in] our case. We've sold 200-plus units, but only 15 to [our] investors."

As industry experts and company advocates, of course, affinity investors can provide valuable feedback and guidance, especially during the early stages of product development. Both Arcus Medical and Tympany make use of the expertise of their investors. Miskie considers himself lucky: "How many companies have the luxury of tapping 20 professionals for assistance, guidance and opinions?"

An Angle for Every Angel

Medical companies are not the only likely candidates for affinity investments, says Garcia. No matter what industry you're in, it's simply a matter of identifying the nonfinancial rewards. "Every angel I've ever met wants to get into movies," he says. "They want to be able to sit at the theater and see their name scroll by as an executive producer." Of course, Garcia warns angels against investments that are outside their expertise, but the lesson for entrepreneurs is clear: Angels invest for many reasons, and Finding a compelling motive--whether financial or not--can be the key to an angel's heart ... and his or her checkbook.

DAVID WORRELL is an investment banker and author of the e-book Finding Funding. Contact him at david@dworrell.com.

HIT THE BOOKS

If you're serious about raising a substantial amount of money, do your homework first. The process is fraught with legal, regulatory and financial considerations--and investors are unlikely to instruct you on these complexities when they're negotiating their investments. Fortunately, there are excellent technical resources to help you. Following are a few of the better ones:

Before you get an offer from an investor (generally called a "term sheet"), consult Advanced Private Equity Term Sheets and Series A Documents (Law Journal Press, $195). This is a thick, technical manual written primarily for lawyers, but it also contains definitions, templates for term sheets, and dear discussions about the pros and cons of various investor demands.

If a legal tome seems like too much to digest, go for the more straightforward Term Sheets & Valuations: A Line by Line took at the Intricacies of Term Sheets & Valuations by Alex Wilmerding (Aspatore Books, $14.95). This starts you off with the basics and walks you through the most common terms line by line.

Still too complex? Then check out Raising Capital for Dummies by Joseph W. Bartlett and Peter Economy (Wiley, $24.99). Bartlett is an adjunct professor at New York University and one of the editors of the Law Journal Press book mentioned above. This book will help you ask the tough questions during negotiations.