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The Essential Components That Appeal To Angel Investors
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Often times, entrepreneurs are rejected for needed capital because their venture does not match the investor’s criteria, standards, or investment preferences. Some important fundamentals to consider when selecting an investor is the type of industry involved, the company’s stage of development, the amount of capital that needs to be raised, and the geographic location of the enterprise. Business owners can save ample time and frustration from investor rejection simply by conducting a substantial amount of research on potential investors and making sure that their company complements their investors’ requirements.

Geography
Most angels prefer to invest locally for a variety of reasons. First, the convenience of proximity will allow them to frequently visit the companies they have invested in, so they can regularly convene with the management team and be present to witness their investment progress. Second, being closer to their investment enables them to “source” deals through referrals whom they know and trust. In order to accomplish this, they rely greatly on other locally situated angels, accountants, attorneys, business associates, etc.

Size of the investment
Angels are interested in building small start-up companies into moderately-sized businesses or large valuable corporations with a high ROI. These types of start-ups may require capital of tens of thousands of dollars minimum to launch, with subsequent rounds of investments throughout the company’s development. Angels tend to invest anywhere from $25,000 to $500,000 or more.

For example, a $500,000 total investment a start-up requires could be made by one angel investor, 5 angel investors who contribute $100,000 each, or 20 angel investors who contribute $25,000 each to the business endeavor.

Management team
The management team appointed by the company’s founders must be solid, balanced, and experienced. Some businesses have management teams located in different cities and come together solely through telecommunications or videoconferencing. This kind of “scheduled” organization puts the whole team at a disadvantage because they are not physically working together or know how to properly collaborate in the business.

On the other hand, if all the individuals of a management team are situated in one location, the individuals have the opportunity to work with each other and learn from each others’ strengths and weaknesses. Even if a team has never worked with each other in the past, when they come together during the start of a company, they should demonstrate the “ability to execute,” that is, work together in harmony with a proven track record and show their company is establishing revenue and a quick ROI.

Market/industry influence
Angel investors usually invest in industries they have experience in. In addition, they always evaluate the market’s needs for different products or services. The industry of the young company’s goods and inventions should already demonstrate vast growth potential before an angel investor will consider providing the necessary funds. A growing market is the key to profitability and is indicative of an angel investor’s strategy. Early-stage companies should always provide goods and services that reflect uniqueness, a competitive edge, and consumer needs in a growing market.

Improving technology
Technology products and services have always demonstrated popularity among consumers. Since many technologies exist, the entrepreneur should convince the angel investor that their particular technologies are not only one-of-a-kind, but that they address any flaws that their competitor’s products may have and as a result consumers will purchase their products and services.

Many technical people employed by large corporations are able to witness numerous market niches their companies have ignored. These people then move on, leaving the company, and develop a technology that addresses the previous problems encountered. Angels like to invest in companies like this because there is already a proven consumer base and an identifiable customer need that gave rise to the entrepreneur’s novel approach.

Competitive advantage
Every investor determines a company’s worth by trying to identify the reasons behind why customers are inclined to use their products or services. However, a strong customer service establishment is fundamental to any company’s success. This competitive edge is proven by the fact that customers will still eagerly purchase products and services from a company even though a competitor offers the same goods at a lower price. Young business owners should convey the extraordinary, distinctive qualities of their company to their investors and why their enterprise possesses a competitive edge.

Potential rate of return
When compared to venture capitalists, monetary gain tends to be a secondary motive for most angel investors. While many angels invest for reasons that are not purely financial, their overall goal is still profitability. They recognize that start-up companies are high-risk investments and will want to justify that risk by seeking commensurate (very high) rate of returns.

For example, some angels require a 25% rate of return each year, while others may desire much more, such as ten times their investment in a specific time frame. This given period of time may span from a couple of years to several years. Many of these angel investors do not expect a rate of return for at least 5-7 years. Their average return on investments expected is about 34%.

Exit strategies
This is a company’s approach for providing investors with a liquidity event, an occasion or time during the company’s development at which the investor can obtain their rate of return. The exit strategy is often included in the entrepreneur’s presentation, which should provide the best estimate of time for exit and liquidity for all potential investors. Acquisition of a company or a company merger is the most probable exit strategy made unless the company revenues and market sector strongly suggests an IPO opportunity.

Entrepreneurs who seek capital for their start-up companies will eventually be rejected by most investors. There are numerous reasons as to why investors decline a particular deal. A strong management team with a proven track record, geographic location for a given venture, and industry preference are just some factors angels look at when deciding on a specific investment. It is possible to raise needed capital for a venture simply by doing research on various investors and making sure their company meets the potential investors’ preferences.

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