Attracting Angel Investors
Attracting Angel Investors
What Angel Investors Look For in a Company
In order to consider investing, angel investors must believe that the company has great potential to achieve a liquidity event, and one that enables them to earn a significant return on their investment. The following factors imply that a company has this potential.
The first criterion is scale or the potential for the company to achieve significant annual revenues. If a company expects to raise venture capital after the angel round, it must have the potential to earn annual revenues of $50 million to $100 million within five years.
Conversely, an angel investor, when no follow-on capital is required, might be willing to invest in a restaurant or website that has the potential to generate hundreds of thousands or a few million dollars as long as a clear path has been laid out regarding how they could get a sizable return on their investment.
The second criteria is barriers to entry. Barriers to entry are those things that make it difficult for another firm to compete against you, such as patents or proprietary technology, a unique location, and long-term customer contracts.
The third criteria is having a strong management team with relevant experience and successes under their belts. The angels must believe in and be comfortable with both the founders and the key operating personnel of the company.
The fourth criteria is that angel investors need to feel confident of your exit strategy, mainly that the chances are good of eventually having another firm purchase you or your firm going public. It is through your exit strategy that these investors profit from their investment in you.
A final criteria, while not necessarily tied to liquidity potential, is that angel investors tend to only invest in local companies. Angel investors often like to invest in companies that are close by so that they can visit them often and participate in Board and other meetings. In fact, according to the Center for Venture Research, 70% of angel investments are made within 50 miles of the investor’s home or office.
Written by Dave Lavinsky Article Source