5 Things Your Startup Needs to Land Angel Investors

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Angel investors are high net worth individuals who invest their money in startups and start-ups. Unlike venture capitalists, angel investors finance startups in their early stages, making these unproven investments riskier and potentially more lucrative if they pay off. Many angel investors also offer advice and guidance in addition to their financial assets. According to ACA Angel Founders Report, in 2020, Angel-funded companies raised $ 2 billion in total capital from multiple sources, multiplying their initial angel investments by about seven times.

Angel investors are usually your first investors. Their investments can be as small as $ 25,000 or up to $ 200,000, but they are essential to the success of a young business. Also, once a company receives an angel investment, it is easier to convince others of the value of the company and then convince them to invest as well.

Angel investors know that startups have a high failure rate. Nearly one in five U.S. companies fail during the first year, according to the latest data from the U.S. Bureau of Labor Statistics (BLS). In the end, an angel investor must be confident that the potential benefits / benefits of investing outweigh the downside risks. Before investing in a startup, angel investors review various vital issues and carry out due diligence. Here are the top five things angel investors look for before deciding whether or not to invest in a startup:

Related: Where to meet angel investors and how to present them when you do

1. Founder / management team

The management team behind a startup is often considered more important than the idea or product. Investors want to know that the team has the skills, drive, experience and temperament needed to grow the business. The investor has to decide if the founder and the team will be happy to work. How confident is the investor in the team? Is the CEO experienced and willing to listen? How reliable is the CEO? The participation of experienced advisors can also be very beneficial in the early stages to help put together an early-stage team that is still growing.

In addition to showing commitment to the company and the ability to add value, investors want to see a smooth, risk-free interaction between home team members, to ensure long-term success.

2. Business potential and profitability

Angel investors are looking for scalable and capable businesses to grow. Be sure to explain in advance why your business has the potential to be important. Avoid small ideas. Investors will want to know what part of the target market you want to capture over time. The investor must believe that the opportunity has a clear value proposition, there is a large and growing market (TAM, Total Addressable Market), that your solution is unique, the time to build it is now, that it’s you and your team. who can build it, and you will make a lot of money doing it. A good general rule is the 7 to 1 rule: a return of seven dollars (after taxes) for every dollar of capital that an angel investor invests in seven years.

3. What makes your product / service fantastic?

Angel investors are not afraid to invest in high-risk companies as long as they believe the idea is excellent. First, demonstrate the uniqueness of your product. Having a minimum viable product (MVP) is important when presented to angels, or at least a very good framework of what it will be like once you use the funding to build it.

Describe the unique problems it solves and why users are interested. Is it a game-changing piece of technology? And what makes it stand out?

Related: What can you learn from the 5 investment rules of this angel investor

4. Positive initial moment

Angel investors are looking for first signs of traction or customers. Companies that have achieved early traction will likely be able to get better terms with investors. Also, investors will probably wonder how early traction can be accelerated. Is there a particular reason for traction? Could this traction be scaled?

5. A viable exit strategy

Making sure you have a variety of sound exit strategies can help mitigate your risk and predict how they will pay off. Regardless of the success or failure of the business, an exit strategy provides security to the investor. They should be informed of when they can expect returns and, most importantly, how they can minimize their losses.

Angels don’t want to invest in companies that can’t guarantee returns. As Allan Riding, a professor at Carleton University, said, “for every dollar an angel puts into a business, he would like to take out seven dollars, after taxes, in seven years.”

Related: exit strategy through the eyes of an angel investor

While almost all angel investors will consider the above factors at least in part, you should also realize that each angel investor will be unique: they will all have different goals, values, and priorities. Angel investors may find something that appeals to one, but they may deactivate another. A financial plan that one likes may seem too ambitious for another. So while you can optimize your business to make it as attractive as possible, you should also prioritize finding the right fit.

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