3 Must Know Tips About Finding And Approaching Angel Investor
Angel investors are typically high net worth individuals and "cashed out" entrepreneurs who are interested in mentoring other entrepreneurs and sometimes get actively engaged in the businesses they back. Angels pump an estimated $25 billion into tens of thousands of startups annually. In the past, angel investors have typically operated solo. But in a new trend, angel investors are forming groups to pool resources and expertise, generate deal flow and create a formal screening process to pinpoint promising prospects. Here are 3 must know tips about finding and approaching angel investors, from the non-profit Angel Capital Education Foundation:
1. Angel investors are not venture capitalists. Angels invest their own personal funds in a business. Venture Capitalists money usually comes from institutional sources. Angels also back startup and early-stage businesses, while venture capitalists prefer later stage companies. Individual angels invest $5,000 to $100,000, while Venture Capitalist investments go $2 million and up.
2. To attract angel interest, be willing to give up some ownership or control of your business, and be able to show a significant return within 3-7 years, as well as a profitable exit strategy.
3. Seek angel investor funding when: a) your product is fully developed; b) you have already invested your own money and exhausted other alternatives (like family and friends); c) you have existing or confirmed potential customers; d) you can demonstrate that the business is likely to grow fast and can pass $10 million in revenues within 3-5 years.
Angel investors come in many forms, but generally share these traits: members help screen companies and commit to a certain amount of investments yearly. Groups meet regularly (often monthly) to hear investor presentations. Members angels decide individually whether to invest in a business or not. Members work jointly to validate plans, statements and entrepreneur backgrounds. While angel group sizes vary widely, the median pooled investment per round is around $400,000. Some groups focus on specific areas, such as technology, but most are open to a variety of industry sectors, including software, medical devices, services and manufacturing. Angel investors typically look for a management team with proven skills and experience; a unique product or service with a competitive edge, large market and a clear, workable plan; evidence that you have invested substantially yourself; potential for a strong return.
