6 Things that Angel Investors Look for in Startups
You have secured a meeting to pitch your business to an angel investor, now it’s time to make sure you have prepared for the meeting. Be sure that the meeting will be an inclusive and exhausting look at you and your business. No one, no matter how much money they have, will part with it without being very sure that it is used smartly by good people.
Some of the areas you need to cover in your pitch meeting:
- Why are you in this business? Explain your authentic connection to the problem you are solving.
- Explain your target market, show that you are focused and know your target audience intimately.
- Briefly explain (<10 words) your target market’s problem. Clearly identify the need and stay focused on your target market, not the broad industry issues.
- Simply and concisely explain your solution to the problem you has posed. If possible, quantify the benefits.
- How big is your potential market? The bigger it is the better to attract investors. How fast is the market growing? Provide clear data, concisely.
Investors are looking for some key things before they write a check to fund your business. As an entrepreneur, you must know your business inside and out, and you must have the same level of information about your competitors. You need to know your company’s metrics exactly, without hesitation. When asked for the company’s valuation, you must present a realistic number based on fact and common sense. This will likely be the hardest interview that you will ever experience, so you must prepare.
1. The Team
Investors invest mostly in people, not just companies or ideas. An investor needs to know that you are a trustworthy person, capable of living up to their words and commitments. If your company is team managed, all of you need to present and the investor needs to see that you and your team are capable of delivering goals on time and that you, as a group, are capable of withstanding all of the challenges and work that comes with a startup. Personalities need to blend and mesh, between team members as well as the investor and the team.
2. A Big Market
A billion dollar plus or a trillion dollar global market. Your target market must be large enough to warrant an investor taking a risk. If the potential payoff is not large enough, you will have trouble attracting the right investors.
3. On Trend
Is your timing is right to solve this problem? Correct timing is everything in launching a startup. You can be late to the game or redundant. Your startup must solve a problem in a new, unique way.
4. Investment Harvest
Angel investors are equity investors and anticipate harvesting their investment by either selling the company to a large, wealthy company through a lucrative exit at a later date or by doing an IPO. Since angel investors are not lenders and don’t expect companies buying back their investment with interest at a later date they expect entrepreneurs to have given adequate thought to exiting the company, even before making the angel investment. When might an exit occur? Who might be willing to purchase the company? What is the likelihood of an IPO?
5. Are You Teachable?
Teachable is a code word for the ability to listen, acknowledge mistakes and learn. Angel investors , because they have been down either the same or similar road that you are taking, like to share what they know with the companies they invest in. Angel investors like people who listen and learn continuously, from them as well as other sources. And they have little use for people who already know everything or think they do. The lack of teachability shows up in different ways. Some entrepreneurs who interrupt investors’ questions too quickly and inject an answer without having understood the issue are often classified as unteachable.
Entrepreneurs who treat every question like an attack on either themselves or their business also probably have a teachability issue. Angel investors don’t usually like entrepreneurs who seem sure they need no help and have all the answers. If that were the case, then why are they in front of the investors in the first place? A healthier, more productive attitude is for entrepreneurs to own their mistakes and open to taking advice from angel investors .
6. The Business Plan
This is the probably the most important topic and definitely the most basic one. Without a detailed, written and thorough business plan in place, it’s very unlikely that an angel investor will consider investing in your company. There are exceptions to every rule, of course, and there are other ways to see where your company is headed and what the projections for growth are. These are the main points that are included in any business plan:
- Business concept. Describes the business, its product and the market it will serve. It should point out just exactly what is sold, to whom and why the business will hold a competitive advantage.
- Financial features. Highlights the important financial points of the business including sales, profits, cash flows and return on investment.
- Financial requirements. Clearly state the capital needed to start the business and to expand. It should detail the plans on the use of the capital, along with the burn rate for any angel investment.
- Current business position. Furnishes relevant information about the company, its legal form of operation, when it was formed, the principal owners and key personnel.
- Major achievements. Details any developments within the company that is essential to the success of the business. Major achievements include items like patents, prototypes, a facility’s location, any crucial contracts that need to be in place for product development, or results from any test marketing that has been conducted.