Angel Investors and what they are looking for in a company.
July 21, 2015
Bear in mind you must be prepared to give Angels Investors what they want if you want them to invest in your company. Also you need to know that angel investors typically reject three quarters of investment proposals sight unseen.
So how do you get an angel investor to invest in your business?
What are angel investors looking for?
1. A good reason to invest.
Remember that most angel investors are or have been successful entrepreneurs. They enjoy the thrill of helping to build and create a thriving enterprise.
2. The potential for a significant return.
Angel investors invest with the expectation of doing more than just getting their money back. They expect a good return on their investment – a return better than they can do on the stock market.
3. A good management Team.
A competent management team with leadership ability is a must if you hope to attract angel investors. Essentially an angel investor is investing in people, so they need to see the evidence that your business is in the hands of people who are knowledgeable, competent and trustworthy – and possess the skills to lead your business to the next level.
4. A Well Prepared Business Plan.
Angel investors want to see a business plan that’s both convincing and complete. They want to see that you’ve developed a vision for your company and that you’ve given thought to the details of how to get there. They want to see things such as financial projections, detailed marketing plans, and specifics about your market.
5. The Business is structured for investment.
While some angel investors invest by giving loans to a business, a minority equity ownership position is usually the preferred choice.This means that your business has to be structured to allow for investment (and that if you are the sole trader or company, you have to be prepared to give up a certain amount of ownership if you want to attract angel investors). Most angel investors will expect a formal shareholder’s agreement which lays out the nature of their investment and the return.
6. Opportunity for active participation.
For many angel investors, it’s not just about the money; they want to actively participate in developing your business. They want to act as a mentor and sometimes even to take an active role in managing the company. This often translates into the angel investor having a seat on your Board of Directors.
7. A viable Exit Strategy
The get out Clause. Before an investment is made in your business, an angel investor will expect to see an exit strategy. While angel investors are patient and willing to make long-term investments, they need to see how they’re going to reap the return on their investment. The sale of shares to the company’s principals is a common exit strategy for angel investors who hold equity positions; the sale or merger of the company is a common exit strategy for debt-holding investors. Don’t be surprised that your prospective angel investor wants a time-frame set.
So, if you want an angel investor to invest in your business, you have to ensure that your business is investor-ready. If you haven’t already done so, preparing a solid business plan, restructuring your business as necessary and completing your management team are the best ways to start preparing to attract an angel.
Once you've done these things, you’ll be ready to tailor your investment pitch by incorporating the other things that angel investors are looking for that I’ve outlined above. Then all you need to do is find an angel investor to approach.
The good news is that there are myriad resources – in Ireland to help companies to prepare for equity investment.
These include other entrepreneurs, who have taken the same path themselves, government agencies like Enterprise Ireland and InterTradeIreland, local Business Innovation Centres and the development programmes run by incubation centres.
See Angel Investor Links
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