Over the next few weeks we will be giving you the lowdown on angel investors: how to find them, how best to pitch and what they are looking for in your startup to help you determine if seeking angel investment for your startup is the best way to go.
We have covered what a startup needs to do to find an angel investor and how to pitch to an angel investor. This week we cover the four key qualities an angel investor is looking for in a startup.
As you can read in our comparison of angel investors and venture capital investors, there are vast differences between the two. And the type of business you have grown, the type of entrepreneur you are, and where you want to take your business will inform what investment you pursue. To help you determine whether you fit the criteria of what an angel investor is looking for, we have created a list of four things angel investors look for in startups. To see if you could be one of their next success stories.
Can your startup make money?
Although you have the best idea since sliced bread, which will benefit society and is totally unique…can it make money? You don’t need to be the next Facebook, but angel investors will look to see you can demonstrate your startup has the potential to earn money for them (and you).
If you have an early users, it’s useful to include these to show traction and interest early on, this could show potential to scale, and understand your idea put into action. You can showcase this by providing a detailed business plan that includes market research and showing your startup is really beneficial, plus forecasts and your working to arrive at these profit figures (not being realistic will be glaringly obvious!0). A business plan is incredibly useful for other parts of your business, and putting one together will help you understand your own business more which in turn will make you more attractive for investment.
Market size and competitive advantage
As we discussed in the first point, angel investors are looking for opportunities where their investment will make them money. The key to this is having enough people who will potentially want to buy your offer, and having a unique enough offer that those people will want to buy it.
You don’t need to have a global reach, but research to identify a wide enough but realistic market for you to focus on, or likelihood is an angel won’t be interested.
If your startup is a new arrival to an already present market, you will likely be looking to gain your market share from a competitor so competitive advantage is something an angel investor will be looking for in your startup as if you’re the same as every company on the block, it’s unlikely you can attract customers away from more established companies. What makes you unique or better suited for your market? Are you solving a problem your competitors have yet to achieved? Or managed to find a cheaper way of creating a high quality product? Whatever it is, ensure you know what your advantage is.
These are essential parts to include in your business plan so research extensively and test your hypotheses before sharing.
A great leadership team
You and your team are THE key part of your company – angel investors are investing in you as much as your product or service. Great, you’ve got a kickass idea, it has the potential to make millions, with limited competitors and has been worked through to proof of concept, but that isn’t going to get you very far without the right team who can help you deliver it. And this is something that stands out a mile away to investors. Angel investors want to see a startup leadership team that complement each other’s skills, and shows promise to have the ability to deliver during growth and difficult times. Be aware of the strengths and skills within your team and identify what is missing to remedy this.
An exit strategy
Angel investors will expect to be presented with some possible exit strategies to show how they can get their investment back. An angel investor may have an amount of money in mind that they want to make in addition to their original investment, so highlighting options that you have considered, and completed a risk assessment on will be attractive to them so they can weigh up which aligns with their wants. As an angel investor supports the growth of your business with their time and expertise, as well as money, having strong options for exit will be of benefit.
Everything you always wanted an investor to tell you.
Watch the latest in our investor interview series where Decksender’s Mike talks to Matthew Cushen of worth capital.