If you’re new to the business world and wondering about how to get early stage investments, a business angel could be your solution. Here are the answers to some common questions that many have regarding angel financing.
1. How Much Does An Angel Investor Typically Provide?
Most investments begin at $25,000 and go up from there. Most top out at $100k. With crowdfunding and other angel opportunities, however, some angels might get involved at the $5,000 mark for a high-risk opportunity.
2. What Do Business Angels Care About?
In a word: dedication. To invest into your idea, they need to know that you’re passionate about what you’re doing. You need to have a solid business plan in place, be an industry expert in what you’re doing, and keep open lines of communication. The point is for everyone to make money, right? Entrepreneurs that don’t have traction in these areas are going to struggle to attract a business angel.
3. How Long Does It Take To Raise Money?
There is no real time-table for business angels to follow. There is one rule that should be followed: it always takes longer than you imagine it will. Business angels will be performing due diligence on you, look at your history of success, and negotiate favorable terms.
4. What Questions Will I Be Asked?
Business angels need to know everything about a business and an entrepreneur before they’ll be willing to invest into them. This means there will be a focus on public relations, strategies for social media, and the plan to market the goods or services when they’re ready. Value, advertising, cost ratios, and sales cycle information are also the subject of common business angel questions.
The people involved with the business will also come under scrutiny. Business angels will look at the entire executive team and want to know what makes them tick. They’ll look for experience gaps and if entrepreneurs can recognize any gaps that do exist. Scalability and uniqueness also matter.
5. Is It Risky To Be a Business Angel?
Any investment has a certain amount of risk to it. For the business angel who is getting involved with start-ups, there is even more risk. Statistics consistently show that about 10% of the total number of start-ups that begin this year will succeed. That’s a 9 in 10 chance for the business angel to lose their money.
6. How Can Business Angels Be Found?
Relationships fuel the business angel world. Networking is always the best way to meet them. There are also existing investor networks, local investment bankers, lawyers, and even accountants who may become a business angel. A good social site to find one is LinkedIn.
7. Will a Business Angel Sign An NDA?
Doubtful. Most business angels aren’t in the market to steal ideas anyway. They want their money to grow based on the work of trusted entrepreneurs. They don’t want to have to do the work on their own. From the entrepreneur’s vantage point, limiting access to any trade secrets or confidential data is still a best practice.
8. Why Will a Request Be Rejected By a Business Angel?
There are two primary reasons that a business angel will reject an opportunity: location and trust. Business angels tend to invest locally instead of globally, so if an entrepreneur is too far away, an investment isn’t generally going to happen. Trust is also a key issue. If a business angel doesn’t know who an entrepreneur is, then there’s virtually no chance for an investment.
9. What Documentation Is Needed?
From board resolutions that approve financing to law filings and subscription agreements, the amount of paperwork that business angels need to see is pretty extensive. This includes vesting agreements, capitalization tables, and even a Tax ID number. It’s more than just to make sure an entrepreneur’s affairs are in order. It’s to know that the money is going to be used legally so that there aren’t any potential consequences to an investment later on down the road.
10. What Are The Common Mistakes Business Angels See?
Business angels want to see fresh ideas and a passion for success. They also want to see honesty. Entrepreneurs like to sweeten the pot by saying their idea has no competition or they’ll provide unrealistic projections and make them seem real. If an entrepreneur can’t say why their goods or services are different and better, then an investment isn’t going to happen.
Business angels can help a start-up get through the first difficult 12-24 months with a key investment. By knowing what they’ll expect, an entrepreneur can know what they’ll need to do to secure that investment.