Knowing what an angel investor considers a good prospect can help you present yourself as the ideal investment. This isn’t very difficult to do since these investors look for the same things that any other type of investor would look for. This list introduces you to the six things investors want, but there are other things that could easily be added to the list.
1. A viable exit strategy, preferably with profit.
A profitable exit is the long term desire of venture capitalists, but this applies to angel investors as well. Their goal is to bring their investment to the point of profit as quickly as possible. At that point they can sell out their share and make a nice profit. This gets them out of the risk so they can make other investments.
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When there is no viable exit from an investment, angels become quite nervous. Even if you are successful, they will want to sell out so they offload the risk and make their profit.
2. Substantial returns on the investment.
The return on the investment has be substantial or most angels are not interested. If there is the potential to sell substantially higher than they buy, then they see a risk worth taking. If the return is minimal, then it is not worth the risk.
3. Unique qualities that prevent everyone else from copycatting.
Many businesses start out strong because they have a very unique idea but with time they become big failures because a million copycat businesses start up and the competition becomes stiff. Angels are looking for business ideas that do not leave the door open to copycat businesses. There has to be something that stops everyone else from easily entering the market.
Oftentimes, it is the research and development that an entrepreneur puts into their product that bars others from jumping in. Obtaining a good patent or copyright is effective as well because it blocks copycats from directly stealing an idea.
Ensure that others would have to put out tons of time and money to copy your business and you will have an easier time convincing an angel to join in.
4. A management team that can be trusted and respected.
The best business ideas can still turn into tragic failures if they are not supported and managed by respectable, experienced, wise people. The management team for your business is the backbone that will keep it strong until before and after massive success.
Angels are good at sizing up people and determining who will become successful. If they can trust you and believe in you, then they are more likely to invest in you.
5. The ability to stabilize and walk away.
An angel does not want to stay in your business long term. They want to stabilize the business to a profitable point and then sell out for a profit. This gets them off the hot seat in case failure comes later down the road.
Walking away is either through an IPO or by finding a company that wants to add the business into their own portfolio. If the potential for this is not there, then they usually don’t want to invest.
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6. Close proximity between investor and business.
Most angel investors are more comfortable investing in businesses located reasonably close by. This way they understand the local market very well and can meet with the business owner to see what is happening with the business.
7. Reasonable price.
If you are desperate for the funds, you are probably going to be forced to give in some to get it. Angel investors will not invest if the price is not fair for the equity being purchased. Give them a fair deal so they have more chance of a fair profit.