Angel investors, more often than not, are all that startup owners or small enterprises need to take their business to the next level.
If you go deep into the success stories of various high-profile companies, you are likely to find that at some point or another, it was angel investors and entrepreneurs who lifted the then-small-scale business off the ground.
Who are Angel Investors?
Angel investors are typically wealthy individuals, or fellow entrepreneurs, who are willing to invest in startups or small businesses in their early stages of growth. At times, they might do so out of goodwill. But usually, the prospect of getting outsized returns when the small business blooms into a profitable enterprise is what motivates them to invest in the first place.
If you are looking for angel investors for your startup, you need to start networking with leading entities in, as well as outside, your niche. Or you can also use online platforms dedicated to helping startup owners find investors effortlessly.
However, as you might already be aware, finding angels to finance your business is not as easy as it sounds. On average, angel investors reject three out of every four investment proposals without even giving them a proper look.
So, whether you are planning to pitch your startup idea to an angel investor, or are looking for investors to finance your small-scale business, it’s important to prepare well beforehand.
Here, I lift back the curtain on angel investors and entrepreneurs to help you get a better idea of what to expect when finding an investor.
What Do Angel Investors Look for In a Business?
There are various things that angel investors pay attention to when deciding whether or not to finance a small business. Some of these are mentioned below:
- Your passion and commitment towards the business
- The niche that you target, your prominent competitors and thus, your potential to establish a prominent place in the industry
- The executive summary of your business and how well articulated it is
- Early customers and any other entities that endorse your products or support your startup idea
How Much Money Can You Get Through an Angel?
There’s no fixed answer to how much money an angel investor would invest in your business. But in most cases, the average angel investment typically falls in the range of $25,000 to $100,000.
Again, keep in mind that the actual amount will vary depending on your business’s overall profile, the profitability of the goods or services that you offer, and of course, the investor’s own preferences.
How to Start Your Investor Pitch?
Starting your pitch in the right style significantly increases your chances of being approved for the investment.
When beginning your pitch, give a brief overview of what your company does (or plans to do, as the case might be). Focus on what sets you apart from other players in the market.
Try answering the following questions to find the unique points about your business.
- Are your goods or services truly one-of-a-kind?
- If you answered in negative to the first question and similar products do exist, what innovation can you bring about to make your goods stand out?
- How do your goods or services improve the quality of life of your customers? What value do they add to the world at large?
Preparing for the Financial Questions
As mentioned earlier, angel investors are motivated by the prospective gains from their investments. Therefore, you need to zero in on how your business can yield fruitful results if you were to get the required finances.
Paint a clear picture, so that the investor can truly appreciate what’s in it for them.
You might be required to disclose further information related to monetary aspects. Be prepared to provide the necessary insight into your account and finances.
Here are some questions that angel investors normally ask entrepreneurs. So, as a business owner, make sure you are well prepared to answer them.
- How much revenue are you currently generating?
- What is your average monthly expenditure?
- What is your financial projection for the next year? And your long-term financial goals?
- What are the major cost components of your product or service?
- What is your gross margin? How do you plan to achieve/ maintain it?
Marketing and Advertisement Side
To make a fair judgement as to whether or not you can actually deliver on your financial goals, investors need to know your marketing goal as well.
Explain how you plan to promote your goods or services. But remember that creating brand awareness is not all that it takes to gain a firm footing in the industry.
In order to be successful in the long run, you need to strengthen customer relationships and ensure that you have a large group of loyal customers.
When it comes to customer acquisition, angel investors are interested in knowing the following aspects:
- Your company’s PR strategy
- The strategies you implement for customer retention
- The best channel for marketing your products
- The average time between attracting a customer and closing a sale
- The average customer spending in a given period of time
- The total cost incurred in generating a lead
Details About Business Management
For many angel investors, the management team of a business serves as the deciding factor for financing the small-scale enterprise. And this is quite understandable, given the fact that the management team is what ties the whole business together. Even if you don’t have a separate management team, you must have some employees or partners dedicated to ensuring smooth business operations.
Highlight what makes them capable of overseeing business operations, and above all, how they will be able to handle the increased workload when the business starts expanding.
This covers the basics of angel investments, and what you should typically expect in a meeting between angel investors and entrepreneurs.
In the end, you must remember that finding investors for a business can be daunting task. It’s a time-consuming process that requires due diligence and careful planning to get things right in first go. If you wish to raise finances for your business through angel investors, then you should get started as soon as you can.