Angel investors are usually successful entrepreneurs, retired business owners or corporate executives in search of investment opportunities with promising businesses. They’re looking for a piece of the action, but they also have investment criteria and expectations.
We’ll help you decide if angel investors are a good option for your business.
In exchange for funding, angel investors typically expect:
Your business may need funds to get to the next level, but that doesn’t necessarily mean it’s ready for angel investments. Here’s what you need to know as you consider approaching angels.
An important criterion for attracting angel investors is the lifecycle stage that your business is in. The best time to approach angels is when you can clearly demonstrate that their investment will help grow your business. If your business is still in its early stages, they’ll want to see ‘proof of concept’ including:
Angel investors will want the same information for an established business, but they’ll also want to know what your vision is moving forward.
For example, do you plan on using their money to enter a new market, purchase manufacturing equipment that will allow you to increase production, or bring a new product to market? Make sure you can answer the question of how the investment will help your business grow and become more profitable.
If your business is at an appropriate stage and you decide that seeking investments from angels is the right approach, the next step involves gathering information. Get out there and:
Your business may be ready for angel funding, but are you? You will need to be thoroughly prepared with:
Their expectations are often higher than usual. They’re in business to make money, so it’s not uncommon for them to expect a rate of return up to 10 times their investment within the first 5 years. This means you and your business will be under considerable pressure to deliver.
You’ll also need to keep in mind:
It comes down to how much control you’re willing to hand over, and if you think you can realistically live up to the promises you’re making about their investment. If either of these terms is a worry for you, angel investors are probably not a great option.
Angel investors, while looking for a great return and some say in the business, are more likely to take risks. You may be having trouble qualifying for a small business loan as your growth plans seem risky to some lenders, but sometimes angel investors are willing to go where banks aren’t. “High risk, high reward” is part of their motto, so it comes down to convincing them that while your growth plans might be on the chancy side, you can still present a solid case demonstrating how those plans will succeed.
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