The Essential Components That Appeal To Angel Investors

Written by Peter Tran

July 28, 2017

Often times, entrepreneurs are rejected for needed capital because their venture
does match the inor’s criteria, standards, or int preferences.
Some important fundatals to consider when selecting an inor is the type of
industry involved, the company’s stage of developt, the amount of capital
that needs to be raised, and the geographic location of the enterprise. Business
owners can save ample time and frustration from inor rejection simply by conducting
a substantial amount of re on potential investors and making sure that their
company complets their inors’ requirets.

Geography
Most angels prefer to in locally for a variety of reasons. Ft, the convenience
of proximity will allow them to frequently visit the companies they have ined
in, so they can regularly convene with the managet team and be present to witness
their int progress. Second, being closer to their int enables them
to “source” deals through referrals whom they know and trust. In order
to accomplish this, they rely greatly on other locally situated angels, accountants,
attorneys, business associates, etc.

Size of the int
Angels are interested in building small start-up companies into moderately-sized
businesses or large valuable corporations with a high ROI. These types of start-ups
may require capital of tens of thousands of dollars minimum to launch, with subsequent
rounds of ints throughout the company’s developt. Angels tend to
in anywhere from $5,000 to $500,000 or more.

For example, a $500,000 total int a start-up requires could be made by one
angel investor, 5 angel inors who contribute $100,000 each, or 0 angel inors
who contribute $5,000 each to the business endeavor.

Managet team
The managet team appointed by the company’s founders must be solid, balanced,
and experienced. Some businesses have managet teams located in different cities
and come together solely through telecommunications or videoconferencing. This kind
of “scheduled” organization puts the whole team at a disadvantage because
they are physically working together or know how to properly collaborate in
the business.

On the other hand, if all the individuals of a managet team are situated in one
location, the individuals have the opportunity to work with each other and learn
from each others’ strengths and weaknesses. Even if a team has never worked
with each other in the past, when they come together during the start of a company,
they should demonstrate the “ability to execute,” that is, work together
in with a proven track record and show their company is establishing revenue
and a quick ROI.

Market/industry influence
Angel investors usually in in industries they have experience in. In addition,
they always evaluate the market’s needs for different products or services.
The industry of the young company’s goods and inventions should already demonstrate
vast growth potential before an angel inor will consider providing the necessary
funds. A growing market is the key to profitability and is indicative of an angel
inor’s strategy. Early-stage companies should always goods and
services that reflect uniqueness, a competitive edge, and consumer needs in a growing
market.

Improving technology

Technology products and services have always demonstrated popularity among consumers.
Since many technologies exist, the entrepreneur should convince the angel investor
that their particular technologies are only one-of-a-kind, but that they
any flaws that their competitor’s products may have and as a result consumers
will purchase their products and services.

Many technical people employed by large corporations are able to witness numerous
market niches their companies have ignored. These people then move on, leaving the
company, and develop a technology that es the previous problems encountered.
Angels like to in in companies like this because there is already a proven consumer
base and an identifiable customer need that gave rise to the entrepreneur’s
novel approach.

Competitive advantage
Every investor determines a company’s worth by trying to identify the reasons
behind why customers are inclined to use their products or services. However, a
strong customer service establisht is fundatal to any company’s success.
This competitive edge is proven by the fact that customers will still eagerly purchase
products and services from a company even though a competitor offers the same goods
at a lower price. Young business owners should convey the ordinary, distinctive
qualities of their company to their inors and why their enterprise possesses
a competitive edge.

Potential rate of return
When compared to venture capitalists, monetary gain tends to be
a secondary motive for most angel inors. While many angels in for reasons
that are purely financial, their overall goal is still profitability. They recognize
that start-up companies are high-risk ints and will want to justify that
risk by seeking comsurate (very high) rate of returns.

For example, some angels require a 5% rate of return each year, while others may
desire much more, such as ten times their int in a specific time frame. This
given period of time may span from a couple of years to several years. Many of these
angel investors do expect a rate of return for at least 5-7 years. Their average
return on ints expected is about 34%.

Exit strategies
This is a company’s approach for providing inors with a liquidity event,
an occasion or time during the company’s developt at which the inor
can obtain their rate of return. The exit strategy is often included in the entrepreneur’s
presentation, which should the best estimate of time for exit and liquidity
for all potential investors. Acquisition of a company or a company merger is the
most probable exit strategy made unless the company revenues and market sector strongly
suggests an IPO opportunity.

Entrepreneurs who seek capital for their start-up companies will eventually be rejected
by most inors. There are numerous reasons as to why inors decline a particular
deal. A strong managet team with a proven track record, geographic location for
a given venture, and industry preference are just some factors angels look at when
deciding on a specific int. It is possible to raise needed capital for a
venture simply by doing re on various inors and making sure their company
meets the potential inors’ preferences.

Source

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