One of the ways to accelerate your startup growth is having an angel investor on board. Surprisingly, these high-net-worth individuals could change the fortune of your startup by privately providing the early-stage capital it needs. However, not every business can attract angel investors. If you can’t attract angel investors, there are equity crowdfunding portals available for underserved startups. In any case, here are the things angel investors check before investing in your startup;
Angel investments are amongst the most sought after startup financing. Basically, what angel investors do is make small bets on startups to get great returns in the future.
Angel investors invest in startups with the hope of getting ‘home run” returns.
However, angel investors don’t just invest their hard-earned money in startups. Even though they are high-net-worth individuals, they still take calculated risks.
But there are certain things angel investors check before investing in your startup. And once your startup has these attributes, you have a higher chance of attracting these wealthy investors to your business.
#1. The Team Behind the Startup
One of the things angel investors check before investing in your startup is the team behind the business. Surprisingly, most angel investors are more interested in the team behind your startup than the idea itself.
Every angel investor knows that ideas don’t perform miracles on their own. Even if your idea is novel and would solve problems, they will still want to know more about your team.
They will want to know if your team has the right skills, experience, discipline, and temperament to grow a business. Angel investors always ask the following questions to learn more about your company:
- Who are the founders and important members of the team?
- Do the team members have a past working relationship?
- Do the team members have relevant experience in the niche?
- Is there a need to add additional members to the team in the long run?
- What makes it possible for the team to execute the business idea in the first place?
- How many employees does the company have?
- What motivates the founders to come up with the idea?
So, the answers to these questions will help the angel investors to know whether your startup is worth investing their money.
Again, the investors would want to know if the business owner is trustworthy, experienced, and a good listener. If the answer to all these is in the affirmative, your business can potentially attract angel investors.
#2. The Opportunity in the Niche
Like I mentioned earlier, angel investors are businesspeople. They don’t allow sentiments or emotions to influence their decision to invest in your startup. They always prioritize the safety of their investments over any other factor.
So, before any angel investor thinks of investing in your idea, they must analyze the opportunity in that niche. Interestingly, they are more attracted to a niche with an excellent market opportunity.
I don’t want to break your heart, but if your business doesn’t have the potential to become big in the future, no angel investor will look your way.
Don’t forget those angel investors aren’t philanthropists. They don’t invest in companies without potential. That’s why it’s essential to include in your business plan why you think your startup has great potential.
Additionally, try to be convincing in your write-up. Let your potential investors know the problem your product is solving. And the percentage of the market you seek to capture. Perhaps, you may be able to convince them enough to take a chance on your startup.
#3. Early Traction the Company Has in the Market
One of the things angel investors check before investing in your startup is to analyze the early traction of your idea or product in the market. And if your business has great traction in the market, you tend to attract investors and better financing.
That’s why you should always present your startup as a solution rather than a business. With this, it could generate enough traction to get investors’ attention.
So, some of the early traction that could attract investors to your business are;
- Creating minimally viable products
- Having initial or pilot customers
- Customer reviews or testimonials about your business
- Strategic partnerships
#4. How Passionate and Determined is the Startup Owner?
Honestly, growing a startup is not as easy as it seems. Even if you have the capital, you will still encounter unavoidable challenges. But if you have the passion and determination to grow your business, you can overcome those challenges.
So, angel investors or even venture capitalists always look for founders who are passionate, determined, and hungry for success. If you have these attributes, your startup is less likely to fail. That’s why angel investors prefer investing in startups whose founders have great passion and determination.
Of course, investors are aware that startups are difficult to grow. But they prefer working with founders with the inner drive to go through the business’s peaks and valleys.
#5. Your Understanding of Your Business’s Finances and Other Important Metrics
One of the things angel investors check before investing in your startup is your understanding of the business’s finances. And they are more comfortable working with business owners who understand their business’s finances and other essential metrics.
When you are discussing your startup with a potential venture capitalist, let them know that you understand your business’s finances. Also, try to be familiar with some important metrics about your business. Some of them are;
- Your projected growth in revenue
- Your gross margin
- The startup’s monthly burn rate
- Your customers’ lifetime value
- Cost of customer acquisition
- How long it will take the company to break-even
- How much additional capital is needed for your business’s future expansion?
These are the things angel investors check before investing in your startup. Take note and implement them. They could help you attract the right angel investors for your startup.
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