Defining Angel Investors And How They Help Startups
Angel investors are people who invest in small startups or entrepreneurial ventures. They might be family and friends, or they may be other business persons who actively promote business. The angel investment activity is estimated to amount to $24 billion a year.
Here are some things we think it’s important you know about this funding option.
What Is An Angel Investor?
Angel investors finance businesses in their early stages against equity ownership interest. The gesture might be a one-time investment to allow the business an opportunity to be thrust into the limelight or could be an ongoing stream of money to help carry a new business through the difficult early years.
To qualify as an angel investor, individuals wishing to seed money into a new business must meet requirements set by the U.S. Securities Exchange Commission. This includes having an annual income of $200,000 and a minimum net worth of $1 million.
Ways Businesses Benefit From Angel Investors
Angel investors typically offer more favorable terms when compared to other lenders. Since they have a vested interest in seeing the type of business succeed both personally and financially, as opposed to venture capitalists who are firms or people investing other people’s money, they are often very generous with their funding.
Trends are also heavily shaping angel investing. For instance, software and health care respectively represented 30 percent and 23 percent of angel investments as of 2015. Entrepreneurs who can get the right ideas across have an easier time propelling their industry-specific ideas which can ultimately help shape change or move society forward.
How much angel investors are willing to invest does vary. Some suggest the average falls somewhere between $25,000 and $36,000, but it could be as little as $5,000 or up to $100,000 or more.
How To Attract Angel Investors
If you want to catch the eye of an angel investor, keep in mind they will be investing in you, not just your business. That being said, they do carefully examine the product or services you plan to sell. What do angel investors typically look for?
Here are some of the most common things we’ve seen.
- A viable project.
- A well thought out and articulate business plan.
- A unique product or project.
- Passion and commitment from the founders.
- Existing opportunities on the market.
- A good prototype or working model.
- Evidence of early success.
- The ability to attract more investors if your company finds initial success.
- A good exit strategy. This is crucial to attract this type of funding, whether it is an acquisition or IPO.
Be prepared to share this information and more. For instance, you’ll probably be asked questions such as how much capital you’ve raised, how long will that money last and any detailed financial projections for the next couple of years.
You’ll also be queried about staffing, marketing, advertising, PR and social media strategy, along with customer-centric questions such as acquisition, customer lifetime value and your anticipated sales cycle.
If a business fails during its early stages, the angel investor loses any investments made. Due to this, professional angel investors carefully review everything about a business and its founder before giving any seed or other funding.
Reasons they may reject funding a project include poor market opportunity, lack of founder passion, financial projections were lacking, and the location of the company, to name a few.
Pitching To Angel Investors
You should always have an elevator pitch ready in case you connect with someone who may be interested in investing. Whether you’re out hitting the proverbial pavement looking for investors or seeking out people you think might be interested in investing, always be able to explain to the angel investor how and why you chose them to pitch your startup to.
For example, they’ll be very interested in knowing if you were referred or if you read about other projects they funded. Always do your homework on the investor to learn more about them before you make your approach. This way you can determine their interests, any common connections and their overall portfolio. More importantly, they’ll see you’re interested in them too.
If you do attract angel investors, we recommend you be prepared to be able to provide updates at least once a month. They’ll truly be wanting this information, plus they may even consider giving you additional funding if your company does well.
At HJR Global, we pride ourselves on our commitment to helping all businesses grow. We strive to offer startups and entrepreneurs the knowledge and resources needed to succeed in their respective market.
To learn more about ways we can help you pursue your entrepreneurial dreams, contact us today. We’d love to chat with you about your situation to see how we can help.
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