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Angel investors are usually successful entrepreneurs, retired business owners or corporate executives in search of investment opportunities with promising businesses. They’re looking for an investment they can get a return on their money, but often also contribute to an industry, region, town or business community.

What angel investors will expect

They usually seek a combination of financial returns and strategic involvement in exchange for their investment in a startup or early-stage business. In addition:

• They receive an equity stake in the company in exchange for their investment. This means they become partial owners and benefit from the company’s success.
• They are looking for high potential returns on their investment, typically aiming for a substantial multiple of their initial investment over several years.
• An exit. They want to know what the end game is, such as a public offering, being bought by another business or regular dividends.
• Many angel investors prefer to take an active advisory role, offering guidance based on their experience and expertise.

Angel investors also expect regular updates on the company’s performance, including financial reports, progress on key milestones, and any significant challenges. If you currently own 100% of your business, you’ll need to get used to reporting to another.

Assess your readiness

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 a proof of concept including:

• A sound business plan.
• Working prototypes.
• Customer contracts.
• A record of sustainable sales growth.

Angel investors also will want to know how you intend to spend any investment in your business.

Gather information

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:

• Source and access advisers such as your bank manager, accountant and work peers to gain as much knowledge on angel investment as you can.
• Read and search online about what angels in your region are wanting to invest in.
• Network to find an angel that brings more than just money to the deal. An ideal angel is one who is passionate about what your business is attempting to accomplish, with expertise and a track record of success that you can tap into.

Research possible candidates, finding out their past successes, how they operate, and the types and stages of businesses that they prefer to invest in. You don’t need to accept the first angel who offers you money.

Prepare to approach angel investors

Your business may be ready for angel funding, but you need to be prepared as well. Make sure you have:

• A compelling pitch to explain why angels should invest in your business, the opportunity and how will it benefit them.
• The details of your business’s financial projections, its current and potential value, your competitors, any protections you have over your products or services, the proof of concept, and how you want to structure a deal with an investor.
• All your paperwork such as your business plan, accounts, IP ownership, and contracts with staff and suppliers.

Good preparation is key to successfully attracting angel investors and securing their support.

The challenges of angel investors

They’re in business to make money, so it’s not uncommon for them to expect a high rate of return. Keep in mind:

• If you include equity as part of the deal, you’re essentially selling part of your business. When you’re negotiating a deal, make sure the amount the investor is asking for won’t compromise your own ability to make a return.
• Angel investors will want to have a say in how their money is used. They’ll probably want some decision-making power, so expect them to take a hands-on approach.

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.

Contact us if we can help your business take the next step.

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