One source of capital for any business startup is the angel investor. Angel investors are typically high-net worth individuals looking to invest in products or services they believe in with good potential for returns.
But how do you attract an angel investor? What do they want and what are they looking for?
Randy Williams, the founder of North America’s largest and fastest growing angel investors group The Keiretsu Forum gave this advice on how to tap investors and get them interested to help you:
First are the basics I tell everyone — you need to meet the requirements of having good revenue and profit (or revenue and profit potential), a defined market opportunity, a solid management team, intellectual property, and a reasonable valuation.
Second, empathize with the investor. Ask yourself, how am I going to make money for you?
Third, ask for things other than money such as advice, introductions, and contacts.
Fourth, find a champion. Ask for people with expertise in your area for help and try to get them actively in your progress and fund raising process.
Inc. Magazine also made a good list of what it takes to impress an angel investor:
- Something they understand, ideally a business from an industry they’ve been associated with.
- Something they’re passionate about — angels can always leave their money in the bank, so an investment has to interest them.
- Management they trust, respect, and like.
- Something they can bring added value to.
- Deals that don’t require huge sums of money — or additional rounds of angel money.
Your readiness in terms of product development is important. Rare are those angel investors that you can convince simply by describing the concept of your business idea. Most often, they’d want to see the product or service itself (better yet, proven track record). As Dun and Bradstreet advises, one of the important factors that attract angel investors is a proven and successful product or service.
Because the cost of research and development and barriers to market entry are falling, investors will expect to see a working product on the market or at minimum a prototype on the market. By the time you approach these equity investors product issues should have been solved and you will already be working on customer acquisition and maintenance strategies.
Guy Kawasaki offers a number of practical suggestions to help you attract angel investors:
- Make sure they are “accredited” investors.
- Make sure they’re sophisticated investors. with a long list of unsophisticated investors.
- Don’t underestimate them.
- Understand their motivation.
- Enable them to live vicariously.
- Make your story comprehensible to a spouse.
- Sign up people that they’ve heard of.
- Be nice.
If you get funding from an angel investor, understand though that they may want — or even demand — to be involved in the direction setting of your business. As the Wall Street Journal’s article “How to Get Funding from Angel Investors” advises:
Because they’ll own a part of your company, they’ll likely want a say in major decisions, and they’ll watch to see whether you listen to them. Don’t expect them to write a check and walk away. Many angel investors are former business owners who want to help people like themselves. They may be able to provide good advice based on their previous experiences.