What entrepreneur hasn’t dreamed that our startup will experience the same magical beginnings as Google? In 1998, before they even incorporated, Google founders Sergey Brin and Larry Page were trying to present their concept to early-stage, or “angel” investors, with limited success. Sun Microsystems co-founder Andy Bechtolsheim was one such angel. He didn’t have time to listen to their whole pitch, but wrote them a check for $100,000 anyway.
Alas, most companies don’t have so easy a time. There are ways to attract these rare and beautiful creatures. You just have to know what they’re looking for.
Finding investors tops the must-do list for most startups, and that typically starts with finding an angel. Before you start the angel hunt though, it helps to know what angels are looking for before they’ll invest.
There’s a lot at stake. According to the just-released Halo Report from the Angel Capital Association and the Angel Resource Institute (ARI), founded by the Ewing Marion Kauffman Foundation, “The median size of angel & angel group syndicate rounds was $700,000” last year, up from $500,000 in 2010. That’s enough to jumpstart your company’s development in a way bootstrapping and maxing out your credit cards simply can’t match.
So what do angels want?
Before an angel investor writes a check, he or she wants to know if you have the leadership skills to grow your venture. And they want to make sure you thoroughly understand the market, who your competition is and how your product or service is uniquely positioned to create a market impact.
Also high on angels’ wish lists:
â¢ Are you coachable or intractable? Angels are not likely to take a back seat. It’s their money, so most likely they’ll expect to have input on major decisions. Will you be open to following their advice? Or do you think no one could possibly understand your business as well as you do (an all-too-common entrepreneurial misconception)?
â¢ Does your business have legs? Once the money from the initial round of funding is gone, does a viable business concept remain? Will you be generating enough revenues to keep growing?
â¢ How realistic are your projections? All pitches consist of some levels of hype and hope. Angel investors want to know the true size of the market, revenue potential, barriers to entry and competitive landscape.
â¢ What’s your end game? Even though you’re just getting started, investors want to know about your exit strategy. How will they get their money out? The Angel Capital Association reports most angels want to achieve their goals within five to seven years.
â¢ It’s all about the money. How much do you really need now, and specifically what do you need it for? How much will you need six months from now? What percentage of ownership does their money buy? How much money have you personally invested? (No one wants to invest in something you’re not willing to invest in yourself.) And where will additional funding, if needed, come from?
Of course there’s much more. Angels will ask about your patents, trademarks, copyrights or other protections, marketing strategies and expansion plans.
But really it’s all about you. Angels are looking for the 3 Cs. If you want them to bless you with their money (and advice), you need to be Confident, Capable and Committed.
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