Angel investors are wealthy individuals who invest in early-stage companies using their own money.
Angels practice a high-risk, high-reward investment strategy. They take large stakes in unproven seed and venture-stage businesses, hoping that one out of every ten or 20 investments delivers a substantial pay-off.
Angel investors’ affinity for risk makes them excellent partners for early-stage startups, as does the fact that many Angels are themselves former entrepreneurs, and therefore have a good understanding of what it takes to grow a successful business.
Some people believe the best way to find Angel investors is through personal and professional networks. It’s certainly true that leveraging a personal connection can help you stand apart from the countless other companies searching for funding. So, if you can’t reach Angel investors through your existing network, it might be time to join an established business community like London & Partners.
But tapping your network isn’t the only way to engage an Angel investor. Another effective and sometimes more efficient route is to reach out directly to Angel networks. Angel Networks are essentially communities of Angel investors that pool resources and investment opportunities, many of which have easy-to-use submission portals where you can pitch your business.
Angel investors typically invest small amounts of money (from $25,000 to $100,000) in early-stage technology startups or other companies with promising new ideas. Most angel investors are between the ages of 18 and 45. An angel investor may purchase a stake in your company for a window of 20 to 40 percent. Angel investing is an exciting part of life for some entrepreneurs. Angel investors are motivated by their desire to find a few hits and make a lot of money.
What Angel Investors Want To Know Before Investing In Your Startup
1. Who is in the management team?
The principles of Venture Capital are simple: a venture is a small business, so the VC team needs to have the same set of skills, drive, experience and temperament as their portfolio company. When hiring for your new VC team, look for people with similar experience from startup teams in the past, who may have emerged from the same kind of environment that you admire.
2. What Is the market opportunity?
Startup investors are focusing on companies with high potential, but those businesses do not necessarily have the resources to create a product or service that addresses an underserved need. If your first offering is small, then perhaps you should consider building a “platform” business allowing the creation of multiple products or apps. Investors will want to know that you have a reasonable addressable market and what percentage of the potential market you plan to capture over time.
3. What positive results has the company achieved?
More important than your startup’s valuation, more important than the terms offered to investors, and most important of all will be signs of early traction. Early traction can be a clunky website with a couple dozen small customers, or a functioning mobile app business. If you have early traction, you are more likely to raise money from investors and be able to negotiate strong terms.