Angel investors do not come with wings and a halo, yet they may seem heaven-sent to the entrepreneur having trouble finding financing.
Today's angels include private investors who typically are organized in one of two ways to shell out an initial investment to an entrepreneur. An alliance includes a group of solo angel investors making decisions individually concerning what projects to fund. Investors in an angel fund, on the other hand, pool their funds and most of the group has to approve the investment.
Prior to any money changing hands, expect to spend 3 - 6 months in the multi-step phase, which involves the prescreening, application, screening, investment meeting, as well as due diligence. A handful of angels might possess a ‘pay to play’ policy for an entrepreneur, yet these charges shouldn’t be any more than a couple of hundred dollars for an application and no more than $500 for a presentation.
It might be an excellent time to approach angels. The market for angel investors rebounded last year. The overall amount of angel investments rose over 14%, which indicates that angels have significantly increased their activity for investments. Therefore, if you have maxed out all of your credit cards and decimated your savings account to finance a startup, angels may be your answer. Here is how to get angels on your side:
Remain local
According to the Center for Venture Research, 90% of angel investments were made inside of a half-day's travel time from an investors' home. The sites of the ACA and Angel Capital Education Foundation feature angel listings by region. As you have identified the angel networks within your area, check their sites for deal criteria and information regarding the process. An additional model includes the Open Angel Forum that holds complimentary pitch events in different cities. Entrepreneurs that have been pre-selected are brought together with 20 - 30 angels.
Have the proper business
Angels are searching for extremely scalable growth businesses. They have a desire to see the possibility for quick growth in sales and value. It means so-called lifestyle companies. Companies like the corner delis or retail shops, typically will not receive funding. It is vital that you show you’re able to compete within a global market. Also, they want to witness a solid management team who is able to accomplish these goals.
Give some control up
Consider if equity capital is right for you. Do you want to have somebody else own a portion of your business and have a say within strategic decisions?
Angels, on average look for 20 – 40% of the business. They’re able to invest between $10,000 and $2 million, (for smaller ventures), yet the average is usually between $250,000 and $750,000. Oftentimes, angel investors will insist on a board seat.
Be willing to take advice
Arrogance does not play well with angel investors. It is important that an entrepreneur be coachable. A crucial benefit of angel investment groups is that most members have been very successful entrepreneurs who have experience across several disciplines and are able to offer perspective and advice.
Most angel groups provide prescreening coaching. They want you to succeed. The success of an angel’s investment depends upon the success of your organization.
Seek out an investor who is able to vet your project, be certain you have met all of the criteria and who will comment about how you can improve your presentation.
Talk the talk
Thoroughly understand your elevator pitch and have the ability to make it within about thirty seconds. Tell investors what you have, why it will change the lay of the land in some way, and why they ought to be interested.
Be succinct and lose the jargon. The individuals who get a return phone call have an excellent idea they articulate well. Solid financials and strong projections for growth are helpful, but don’t exaggerate. If your financials don’t make sense, you will lose all credibility. Be concentrate on how your product is going to produce revenue.
Know the way out
Investors want to know the exit strategy. The median time length angel investors remain on board is 5 – 7 years. Common exit routes involve a sale of the business or buyback of an angels' stake by a founder. Go ahead. Get ready. Woo your Angel.