Angel investors invest in early stage or startup companies in exchange for an equity ownership interest. Angel investment in startups has been accelerating. High-profile success stories like Uber, WhatsApp, and Facebook have spurred angel investors to make multiple bets with the hopes of getting outsized returns. Here are seven things to know about your potential business angel, according to Forbes.
By Anda Sebesi
How much do angel investors invest in a company?
The typical angel investment is USD 25,000 to USD 100,000 in a company, but can go higher.
What are the six most important things for angel investors?
- The quality, passion, commitment, and integrity of the founders.
- The market opportunity being addressed and the potential for the company to become very big.
- A clearly thought out business plan, and any early evidence of obtaining traction toward the plan.
- Interesting technology or intellectual property.
- An appropriate valuation with reasonable terms.
- The viability of raising additional rounds of financing if progress is made.
What do angel investors like to initially see from an entrepreneur?
- A clearly articulated elevator pitch for the business.
- An executive summary or pitch deck.
- A prototype or working model of the proposed product or service (or at least renditions).
- Early adopters or customers.
How long will it take to raise angel financing?
It will always take longer to raise angel financing than you expect, and it will be more difficult than you had hoped. Not only do you have to find the right investors who are interested in your sector, but you have to go through meetings, due diligence, negotiations of terms, and more. Raising capital can be a very time-consuming process.
What financial questions should the entrepreneur anticipate from angel investors?
- How much capital are you raising?
- How long will that capital last?
- What will be your monthly burn rate?
- Do you have detailed financial projections for the next two years?
- What are the key assumptions underlying your projections?
- What key cost components are there for the product or service?
- What are the unit economics?
- What are the likely gross margins?
What questions should the entrepreneur anticipate about marketing and customer acquisition?
- How does the company market or plan to market its products or services?
- What is the company’s PR strategy?
- What is the company’s social media strategy?
- What is the cost of a customer acquisition?
- What is the projected lifetime value of a customer?
- What advertising will you be doing?
- What is the typical sales cycle between initial customer contact and closing of a sale?
What are typical reasons angel investors will reject an investment?
- The market opportunity or potential size of the business is perceived as too small.
- The founders don’t come across as knowledgeable or passionate.
- The sector that the startup operates in is not of interest to the investor.
- The pitch was made by the entrepreneur through a blind email and not a referral from a trusted colleague of the angel investor.
- The financial projections were not believable and the founders couldn’t convince the investor of the reasonableness of the underlying assumptions.
- The company was based too far away from the angel investor (most angel investors like to invest locally, and in tech-oriented cities like San Francisco or New York).
- The investor wasn’t convinced of the need for your product or service.