September 18, 2017
The Rainmaker

Six considerations when seeking angel investors

Ken Cook

Lots of early stage businesses are popping up these days. And for many of the entrepreneurs, finding an angel investor is an important part of the growth of the company. After all, angel investors can be very valuable, both for their money and their expertise. With these considerations in mind, here are six things to think about to help determine if an angel investor is in your future.

1. Most angel investors are involved investors. These are usually high-net-worth individuals who have an interest or passion for a particular industry or type of business. They have had a successful past with similar businesses, and are looking to capitalize on their expertise and leverage their capital.

Entrepreneurs need to recognize this fact about angels, and understand taking in angel investment capital is akin to taking on a partner. An angel investor's capital buys them access and influence. The entrepreneur needs to be open to someone else influencing or making decisions in their business.

2. Angels look for uniqueness. They want to invest in someone and something with a strong potential for significant growth. Leveraging capital in a high-risk investment means the upside potential return, coupled with the strength of the management team, offer a strong possibility of significant double digit returns in three to five years. These types of returns come from companies offering a unique value to a particular marketplace. The uniqueness can come from many different sources. What's important is that it is sustainable, and difficult to copy.

3. Angels are not crutches. If a business is in need of capital, and the reason behind this is poor practices on the part of the ownership and management team, the possibility of securing angel investment money is very slim. If you seek angel investment capital, make sure your business operations and management practices are solid. They don't have to be dead solid perfect, but they cannot be the underlying cause for your need for capital.

4. Angel investors have their own unique place in the spectrum of capital sources. In the earliest stages, businesses are most often funded through the owner's own capital and the capital of friends and family. It is rare an angel investor will put money into a pure startup operation.

The primary exception to this is if the business has a completely unique product requiring research and development. Intellectual property you can patent in the form of a product can attract investment capital, particularly if you can substantiate the market potential for the product.

5. Entrepreneurs need to recognize that securing angel investment money is a time-consuming process. There needs to be a solid business plan clearly and succinctly laying out the vision, goals and steps to be taken to turn ideas into reality. Supporting the business plan are financial projections supported by substantive market research, if not real live market data. Once the business plan and financial projections are solid, the business owner then needs to find the angel investor.

6. Be specific in how you go about searching for an investor. Ask your contacts in the accounting and legal professions. Ask other owners who have secured investment capital. Look for angel investment groups where the investors operate together to screen and analyze investment opportunities.

Bottom Line - angel investment capital is valuable for businesses on the verge of some strong growth potential tied to uniqueness. Recognize it is a partnership in some ways, and the process of securing the investment capital can be long and very time consuming.

Ken Cook is the co-founder of How to Who, a program on how to build strong relationships and how to build business through those relationships. Learn more at www.howtowho.com.

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