If you're looking to get funding (and possibly mentorship) for your business, you might consider working with an angel investor. Angel investors are individuals (often wealthy ones) who invest in small businesses, often in exchange for a partial ownership stake in your company. In some cases, they may also help you make major decisions, advising you or directing you on the development of the company--especially if they have prior business experience.
Attracting an angel investor to your business could be the breakthrough you need to make your startup a success. With an injection of funding and insights from an experienced entrepreneur, you could easily turn your startup into a successful business. But therein lies the problem--how can you attract an angel investor in the first place?
Beyond the Business Plan
The obvious answer here is that you need a good overall business plan. You need to have an idea that stands out, but is also grounded enough in reality that it seems to have a good chance of making money. If you don't have a strong foundation for your business, no angel investor is going to give you a second thought. However, even with a solid business idea, there are many other qualities that angel investors look for--and you'll need to understand them if you want to attract the right fit.
The Most Important Considerations for Angel Investors
These are some of the most important considerations angel investors keep in mind before deciding whether to invest in a startup.
- Financials. It should come as no surprise to learn that most angel investors strongly prioritize the financials of the companies they consider. After all, the top goal of most angel investors is making money. You'll need to demonstrably prove that your company will be able to generate revenue and grow in a relatively short period of time.
- Competition. Angel investors will also think about your competition--including whether or not you've done ample research in working to understand your competition. You may have a brilliant idea for a business, but if another entrepreneur is already tackling the idea in a better way than you, there's no point in investing.
- Market evidence. Your product or service may sound great on paper, to the point that it makes sense that people would want to buy it. But what evidence is there that people will spend money on this? You'll need to come prepared with market research if you want to impress an angel investor.
- Founder skills. Angel investors also care deeply about the nature of the company's founder. What kind of skills does this founder have? Do they seem capable of leading the organization and forging a path forward in this industry?
- Founder experience. What kind of history does this founder have? Have they ever started or managed a business before? Have they worked in companies within this industry?
- The team. Even the best, most dedicated entrepreneurs can't build a business on their own. They depend on partners and employees to build the business collaboratively. Accordingly, angel investors want to know whom you've hired, and who you plan to bring on in the future.
- Networks and resources. What kind of access to resources do you currently have? Have you attracted any funding yet? Do you have vendors in mind or partnerships in place to get your business running?
- The culture. Organizational culture is a massive factor for success in business, and angel investors know it. If you're still in the planning stages of your startup, it may be hard to demonstrate what your company culture will be like, but angel investors will expect a reasonable answer.
- Compatibility. On a similar note, don't discount the power of likability. Angel investors want to know they're investing in a person who's worthy of the money--and they want to work only with someone they can genuinely get along with. Are you a friendly, easygoing person who's compatible with this angel investor?
Every Angel Investor Is Different
While the considerations in the previous section are things that almost every angel investor will at least partially consider, you also need to realize that each angel investor will be different--they'll all have different goals, different values, and different priorities. What looks charming to one angel investor may be a turnoff to another, and a financial plan that looks attractive to one may seem overly ambitious (on the verge of arrogant) to another.
Accordingly, while you can optimize your business to be appealing as possible, it's also important to prioritize finding the right fit. If the first angel investors you speak with aren't interested in moving forward, learn from the experience, make some adjustments, and move on to something else.