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Angel Investors

What are angel investors?

Angel investors are affluent individuals, or groups of individuals, who invest their own capital in early-stage startups and entrepreneurs in exchange for equity in the company. The percentage of equity is negotiable and determined in large part by the company’s valuation, but averages from 20-50%.

In addition to equity, these individuals will want some control over how the business operates. Capital raised from angel investors can vary greatly, anywhere from $150,000 to $2,000,000. In 2012, investments from angel investors averaged at $600,000.

Startup industries that appeal most to angel investors include Internet, healthcare, mobile and telecom, energy and utilities, electronics, and consumer products and services.

The role of an angel investor

Angel investors are an ideal match for small business starting out and mid-sized enterprises trying to scale. Angel visitors often come from large corporations where they’ve honed skills as high-level executives over the course of their careers.

They can offer you and your company valuable advice/mentorship, as well as connections to their vast professional network. In short, these individuals make financial investments and will use their expertise to foster the growth and future success of your business.

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Differences between angel investors and venture capitalists

Angel investors:

  • Invest their own funds

  • Smaller investments

  • 20%-25% equity

  • Very open to investing in startups

  • Often take on a mentorship role and will be more involved in business decisions

Venture capitalists:

  • Firms or companies invest funds from other individuals

  • Larger investments

  • 25%-35% equity

  • Prefer to invest in established businesses

  • May request a Board of Directors, will not serve as a mentor

What angel investors look for

The main concern for an angel investor is maximizing their return on investment, typically within a five-year timeframe. To stand out among other businesses vying for funding, your pitch deck should demonstrate the following:

  • Explain the problem your product/company solves

  • Focus on the value/benefit your product/company offers

  • Ensure you have a good product-market fit

  • Tell an engaging story that communicates your company’s vision

  • Base your deck on well-researched data

  • Showcase your strong, dedicated team

In addition to a winning pitch deck, prepare a thorough business plan that outlines how funds are currently being used as well as your future financial projections. Your business plan should include an analysis of your target market and your marketing strategy. You should also consider creating a professional website to properly display your product and vision.

What to look for in an angel investor

As you start pitching your product/business to investors, keep in mind that it’s more important to find the right people verses securing large investments.

When looking for an investor, consider the following:

  • How much funding is being offered?

  • How much equity is the investor asking for?

  • How involved will the investor be in day-to-day company decisions?

  • How well-connected is the investor?

The connections an angel investor has can prove extremely valuable for the future of your company when it comes to additional fundraising rounds and securing business or acquisition deals.

What to include in your pitch to an angel investor

  1. Problem or pain point

  2. Solution

  3. Product

  4. Target market size

  5. Market traction (i.e. brand awareness, customer response/demand, profitability)

  6. Competition and opportunities

  7. Barriers to market entry

  8. Team introduction

  9. Funding history (i.e. amount needed to raise, breakdown of finances)

  10. Financial model

  11. Company trajectory and vision

  12. Contact information

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