An angel investor is someone who brings an investment to an early-stage startup company. In exchange for that investment, they get a stake in the company. Understanding that startups are risky, they typically bring between $25,000 and $100,000 to the table in the hopes of winning big on the right company.
An angel investor needs to feel confident that your company is a better-than-average bet. They would like to feel confident that you’re an obvious winner, but they will generally invest when they see the potential reward as worth the downside risks. They determine this by doing due diligence.
In this scenario, due diligence means examining the company from top to bottom in an effort to determine whether it is run well and likely to prosper.
How is the company managed?
Investors often believe that a visionary leader and strong management team are among the most important factors in a company’s success. They may even place this above the product in importance, according to Forbes.
Be prepared to show off your skills, drive, temperament and experience. Be ready to share who the key team members are, how long they have worked together, whether they’ve worked together before and what relevant experience they have. Explain why they’re capable of executing your business plan. Also discuss what motivates the team and the founders of the startup. Explain what employees you already have, what additions to the team are needed, and how you plan to scale up.
How big is the opportunity?
If you could scale up quickly, what could you gain? Angel investors may not be willing to invest more than $100,000, but that’s enough to show your business is scalable. Remember, they’re looking to make a tidy profit on this investment. They’re not looking for small ideas.
What’s the potential market for your product? What would you need to get that market?
How are you doing so far?
Have you developed early traction with customers? Have you created a beta or demonstration product? Have you piloted sales to likely customers? Have you already built a strategic partnership?
Do you understand your financials and key metrics?
Besides a great product in a potentially booming market, you need the business knowledge to run your company. Can you isolate your monthly burn rate? What is your projected growth in revenues? How much does it cost to acquire a customer? When do you expect to be profitable? How much capital do you really need?
There are many other factors an angel investor may consider. Ultimately, you want to present a great product in an interesting way. Understand the risks and be able to articulate a strategy for minimizing them. A good business attorney can help.