You have likely heard about companies raising substantial money for their new product or service or to expand operations. There is a lot that goes into getting the green light from investors to receive those funds. Investors ask critical questions that are important for the future of the business and the investor’s money.
But, first, what is an angel investor? Well, according to a blog post on CrunchBase.com, an angel investor is “typically a high net worth individual that invests in a new or small business, providing capital in exchange for equity in the company. Additionally, since the JOBS Act, angel investing has expanded and individuals, regardless of their annual income, can participate in equity crowdfunding.”
Before making an investment in a startup, it is important for an investor to consider more than just a return on their investment. More importantly, the investor must consider several factors that will paint a complete picture of the startup.
Here are 11 things angel investors look for before investing their money.
- Company Overview: What makes the company stand out from others? What are the organization’s value proposition and future plans?
- The Leadership Team: Being introduced to the founders and leadership team of a startup team is critical for an angel investor to understand the expertise and history.
- Competitor Outlook: Investors are fully aware of the competitive threats for any business. Therefore, they are very interested in learning how a business plans to compete and stand out from the rest of the crowd.
- Customer Acquisition: An angel investor should ask a startup about the cost of customer acquisition and if any marketing plans are in play to acquire new customers.
- Product or Service: An investor should ask for a clear-cut view of the product or service being provided along with its distinctive features.
- Intellectual Property: An angel investor will inquire about the existence of trademarks, patents, or copyrights and ensure no violations or third-party rights are in questions.
- Financial Projections: Understanding the current financial climate of a startup is imperative for an angel investor. What metrics have the management team established? How much debt is the company in? Does income correlate appropriately to expenses? What are the organization’s assets?
- Scalability: Understanding plans for growth and scalability are crucial in determining if an investment can yield good returns over time.
- Market Size: Many investors are looking for new opportunities to ensure a business has solid growth potential. So, it is important to know the regional market and its significance to the startup’s product or service.
- Traction: It is important for startups to provide angel investors with good proof of concept and its ability to be effectively sold on the market.
- Business Plan: One of the most effective ways for a startup to present a storyboard format of their business and tie it into the company’s marketing strategies and financial outlook is with a business plan.
Spend your time and resources looking for the right investor for your business. Ask them questions about your concept. Receive and implement their feedback. Then, go for the juggler and ask them for the money.