Thursday, December 22, 2011

What exactly do angels look for?

Below are some specific characteristics that the angel investors at the panel event had mentioned they look for:

-          Unique technology or technology that is patentable or a trade secret (i.e. something that doesn’t need to make it solely on marketing)
-          Good people who know how to work in capital-strained environments and can do a lot with very little resources
-          Entrepreneurs who are flexible and know how to fail early or “pivot” their business model if they need to
-          Demonstrate that you really know your industry and business
-          Having a history of other early ventures can be a huge benefit. Even if the prior companies weren’t a success, showing that you learned from your mistakes and knowing how to not make them again is a big advantage.
-          Market validation and customers who are willing to pay for your idea/product
-          Angels are often looking for pre-money valuations that are less than $3mm and they expect the entrepreneur to come in with an idea about the valuation of their company. Although in the end, the angel investor will just end up comparing your company to other deals they have seen and the growth/risk profile of those companies. Typical investments for angels have pre-money valuations between $1.5mm and $4mm and this has remained pretty consistent over the years. Valuation does end up being a negotiation, but don’t try to come into the meeting talking about DCF and public comps because it’s often less relevant for seed stage investing
-          Remember that angels are not necessarily investing in your product or your management team. They are investing in your company’s future cash flows.
 So before you get too caught up about making sure you have an amazing business plan or marketing materials, aim to have a minimum viable product that proves your idea or product is the most important product/service for a specific customer.
Also, remember that angel investing should be a two-way street. You should be doing your own due diligence on your potential investors just as much as they are doing their diligence on you and your company. The benefits of accessing experienced angel investors is that you’ll have smart money backing you and you’ll have access to a much larger investor network.

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