Angels are not your average investors. Angels are those people who have the capability of financially affording to indulge their love of risk. They are accredited investors, who are defined as those with a net worth of $1 million and above, or an annual salary of $200,000 and above. Typically, an angel usually invests less than $1 million in early-stage companies.
They remarkably provide additional value beyond even the funds they provide. Although most entrepreneurs have gained access to many popular crowd-funding sites, they barely have any insight to the angel investment community that funds more business startups than all the other venture sources combined. In fact, some sites such as AngelList can help you find angels, but they don’t tell you how angels actually work. Below are eight insights that will help you attract angel investors and find productive matches.
Building a Convincing Case
Although angel investors have the will to take on more risk, they still demand to see well-thought out plans with products that have a documented must-have’ need. They also need assurance of a competent team behind such plans. As an entrepreneur, you can only raise money from angels by clearly outlining and defining the competitive landscape of your business, and how your product bears a clear competitive advantage over the others.
Angels are accredited investors, investing their own cash for a defined percentage of the business. They have met the set legal security minimums for professionalism and net worth in order to reduce the risk to you, as the entrepreneur.
Individual Investments are Usually Less than $100,000
In most cases, groups of angels usually syndicate multiple individual amounts. However, in case your request exceeds $1 million, you might be forced to concentrate on venture capital alternatives instead.
Avoid Questionable or Risky Business Domains
You obviously wouldn’t expect angels to invest in gambling sites, debt collection business proposals or work-at-home schemes. They barely invest in such startups. Others include restaurants, consulting, brick-and-mortar retail, and telemarketing.
Appealing startups tend to understand what excites angels and what scares them away. They’re transparent, addressing all questions of risk upfront. Yes, losing money is a fear. However, it is not necessarily the biggest fear, especially during early stages. Perceived untrustworthiness or any other character flaws are usually the biggest fear.
Proving your Worth
Startups ought to vet their business model and idea properly before they can even expect to start receiving large amounts of investment capital. One of the most excellent ways of proving market validation is crowd-funding, especially for product and consumer technology companies. Angels usually make use of this to filter out startups that don’t seem promising.
Identify and Contact Angels Most Suitable for You
If you’ve decided to take the angels’ approach, it would be quite wise to focus on those that can appropriately help you. Angels may not have the financial resources to help out all firms that approach them. Angel networks and/or professional service firms which work with private investors can aid you in the selection and screening process.
Besides Money, Angel Investors Usually Share Expertise
Angels are typically former or current successful entrepreneurs who would love bringing more than just money to your startup. Most of them prefer local opportunities or ventures where they can meet with your team and work face-to-face. This explains why obtaining angel investments internationally or from across the country is quite hard.
All in all, you should keep in mind that angels are business people, just like you. Most likely, they were once in the situation you’re in. For that reason, they expect you to show respect and integrity for their position as they respect yours. They won’t respond favorably to large egos, pressure tactics or failure to effectively do your homework. Some of the most virtues they worship include passion and persistence. Rejection should thus just be a temporary setback.