It is widely known that no matter the entrepreneurial endeavor, it will never reach its full potential without receiving a decent amount of financial support. Securing adequate financing for any new venture nowadays is an exceptionally difficult proposition, which is why angel investors are considered so valuable to the startup ecosystem.
To successfully secure the early stage support of an angel investor, entrepreneurs need to determine what precisely they are looking for when evaluating an investment opportunity. Although, inversely it is also important for entrepreneurs to understand how to properly evaluate an angel investor’s proposal. This due to equity ownership interest often requiring an exchange for the early stage funding provided by the investor.
Below I will focus primarily on the indicators which the overwhelming majority of angel investors assess against, when evaluating any potential investment opportunity:
1. Genuine Passion, Integrity, and Commitment.
In general, angel investors tend to group entrepreneurs into two distinct categories. In the first there are those entrepreneurs seeking to take advantage of a new or emerging trend. Whereas, in the second it’s made up of passionate entrepreneurs who truly believe in their idea and its success. It’s been reported by many research studies, that angel investors typically prefer entrepreneurs that fall into the latter grouping, because they believe that these entrepreneurs will more likely go to greater lengths in ensuring that their business realizes its full potential. When taking this passion, and adding it to entrepreneurs that act with integrity, plus who are completely committed to the success of their endeavor, and this becomes a recipe for success!
2. Credible Experience.
It is important to note that passion, integrity, and commitment do not represent the full range of abilities an angel investor seeks in any startup founder. In addition to these, angel investors value practical experience. This doesn’t mean that a group of young, enthusiastic entrepreneurs will be immediately turned away due to a lack of previous experience, but rather that an angel investor will feel far more confident if the group includes at least one or two individuals with significant business experience showing a clear track record of previous entrepreneurial success. These individuals don’t even have to be operational, and angel investors have been known to find them being advisors to the business as acceptable.
3. Thorough Approach to Planning, Research, and Analysis.
Angel investing can be quite a risky proposition, but on the other hand capable of yielding an incredible return on investment. Investors need to be fully aware of the risks they are exposing themselves to when making an investment in any early stage startup. To mitigate these risks, angel investors will often require evidence of a detailed approach to planning, research, and analysis relating to all aspects of the intended business. An entrepreneur that is unable to demonstrate this is likely to not land the support of an angel investor. A clear commitment to this process will go a long way toward inspiring additional levels of confidence in any potential angel investor.
4. Short- and Long-Term Potential for Outsized ROI.
Contrary to their name, angel investors are not interested in any kind of altruistic approach to investing, and rather they expect an outsized return on their committed investment in supporting an early stage entrepreneurial endeavor. Entrepreneurs must therefore be able to demonstrate that any investment amount going to their company will yield a sizable short and long-term return. To truly inspire confidence in potential investors, entrepreneurs should outline why they believe in the viability of securing future financing, and offer reasonable terms based on an appropriate valuation of the proposed amount. Developing a clear understanding of the types of requirements angel investors seek will ultimately prove invaluable for any up-and-coming entrepreneur. When starting out always remember that the business should be developed while staying true to the company’s core vision. Ultimately there are a number of specific factors which both entrepreneurs and angel investors consider during the evaluation process, and often these core metrics tend to be sought by both leading to mutual synergy on these points.
Luigi Wewege is the President and CEO of Vivier Group a multinational financial group of companies, providing its services worldwide through representation in jurisdictions across Africa, Asia, Oceania, Europe and South America. The group of companies is comprised of Vivier & Co, Vivier Capital, Vivier Developments, Vivier Investments, Vivier Ventures, and launching shortly Vivier Growth Fund. Luigi is also the author of “The Digital Banking Revolution” which is currently available for purchase in all major online bookstores.