Angel investments are one of the most popular forms of financing for business, and angel investors are always on the look out for new opportunities to invest in sound, well-managed companies. But, did you know Angel Investors typically reject three-quarters of investment proposals?
How do you get an angel Investor to invest in your business? What are angel investors looking out for?
Here are 7 things Angel Investors want:
1. The potential for a solid return.
Angel investing involves a high degree of risk, so angel investors have the expectation of doing more than just getting their money back when they invest in an enterprise.
They are looking for a higher return on their investment than they can get on the stock market.
2. A good reason to invest.
Remember that most angel investors are or have been successful entrepreneurs. They enjoy the thrill of helping to build and create a thriving enterprise.
However, there are three categories of angel investors, the one most attracted by the excitement of creating something new, the one most concerned about helping his community or attracted by the potential of developing environmental technologies.
Determine which category of angel investor you’re trying to attract and tailor your pitch accordingly.
3. An experienced, solid management team
A solid, complete management team with leadership ability is a must. Essentially an angel investor is investing in people, so he or she needs to see the evidence that your business is in the hands of people who are knowledgeable, experienced, competent and trustworthy – and possess the skills to lead your business to the next level.
For most businesses, a complete management team will include skilled, knowledgeable people who know about marketing and selling products, manufacturing, managing people, and accounting.
4. A solid business plan
Angel investors want to see a business plan that’s both convincing and complete. They want to see that you’ve developed a vision for your company and that you’ve given thought to the details of how to get there.
They want to see things such as financial projections, detailed marketing plans, and specifics about your market.
5. A business structured for investment.
While some angel investors invest by giving loans to a business, more than half of angel investors are looking for minority equity ownership position.
This means that your business has to be structured to allow for investment; and that if you are the sole owner of your business, you have to be prepared to give up a certain amount of ownership. Most angel investors will expect a formal shareholder’s agreement which lays out the nature of their investment and the return.
6. The opportunity to be actively involved.
For many angel investors, it’s not just about the money; they want to actively participate in developing your business. They want to act as a mentor and sometimes even to take an active role in managing the company.
This often translates into the angel investor having a seat on your Board of Directors.
7. A viable exit strategy.
Before he or she invests in tour business, an angel investor will expect to see an exit strategy. While angel investors are patient and willing to male long-term investments, they need to see how they’re going to reap the return on their investment.
The sale of shares to the company’s principals is a common exit strategy for angel investors who hold equity ownership positions; the sale or merger of the company is a common exit strategy for debt-holding investors.