Angel investors are individuals with a significant amount of personal wealth and a willingness to invest some of this wealth and the experience they have gained over many years into young startup companies. These investors are constantly approached by startup founders but they typically reject close to three-quarter of proposals offered to them. There are certain things that angels look out for in startups. Here are seven of those qualities;
The potential for a solid return:
When angel investors invest in an enterprise they do so with the expectation of not just getting their money back, but for a higher return on investment than they would have gotten, perhaps from the stock market. Therefore, when you make a proposal ensure it holds a potential for a huge return.
A good reason to invest:
Although all angel investors enjoy the thrill of helping to start and nurture a promising business, there are three major categories of angel investors and each has a specific reason for investing. While the hedonistic angel investor is attracted by the excitement of starting something new, an altruistic angel may be more concerned about helping the community or developing environmental technologies. Determine which category your prospective investor belongs to and frame your pitch accordingly.
A solid and experienced management team:
Angel investors are more likely to invest in people rather than ideas. They need to see that your business is in the hands of a team that is knowledgeable, competent, experienced, trustworthy and possess the skills needed to take the business to the next level. They want to see a team with a proven track record of delivering goals on time and with the capacity of handling responsibilities that comes with startups.
A solid business plan:
Angel investors want to see a solid business plan. They need to be sure that you have put sufficient thought and planning into your business, and that everything has been written down. They want to see that you have a vision for your business and have plans for how to get there. Your business plan must answer questions such as; what problem is being solved? What is the business model? What is the market like? Who are the competitors? What advantages do you have over your competitors and how will the investor make money?
A business that is structured for investment:
Although your angels invest by giving loans to businesses, majority look towards minority equity ownership position. This simply means that you must have a business that is structured to allow for investment. As a sole proprietor, you must be willing to give up a certain amount of ownership.
The opportunity to be actively involved:
In most cases, angels are not just interested in the money, they want the thrill and uncertainty that comes with developing a new business. Basically, they want to be actively involved in the business management and to be a mentor. You may have to give them a seat on your Board of Directors.
A feasible exit strategy:
Before an investor agrees to invest in your business you must show him/her a way out, an exit strategy. The investor needs to see how he/she is going to reap the return on their investment. Sale of shares is a common exit strategy for investors who hold equity ownership positions. While for debt-holding investors, the sale or merger of the company is a preferred exit strategy.