What Angel Investors Look For In A Business

What Angel Investors Look for in a Business

If you’re a startup looking for investors, you need to know what angel investors look for in a business. This will teach you how to properly pitch your business to them.

An angel investor is a person or group of people with a liquid asset of over $1 million seeking to invest their personal money in startup businesses.

Their investment can be a source of funding for those looking to start or expand their businesses. However, having a good idea is not enough to attract angel investors; there are some other factors to take into consideration.

Knowing what angel investors look for in a business can give you an edge when approaching one. It’ll put you in an advantageous position to bag the capital your startup needs.

This guide outlines everything angel investors look for in a business and how you can tailor your proposal.

What do angel investors look for in a business?

Angel investors consider a variety of factors when deciding which businesses to invest in. Below are some of them:

High return on investment

It is safe to say that this is one of the major things angel investors look out for in a business. They want to know how high the return will be if they consider investing with you. Therefore, you have to pitch your product or service in a very attractive manner.

A structured business plan

As a startup, ensure that you have a well-detailed business plan to pitch to prospective angel investors. This business plan is what will sell your business well to angel investors. Your business plan should contain the following:

  • Marketing strategies Market research
  • Financial projections
  • Any other important information.
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A structured exit plan

The aim of starting a business is to leave—not just leaving but doing so profitably. Angel investors have a better understanding of this than business owners. Therefore, make sure your business has a good number of well-structured exit plans.

This will help reduce risk and predict payments eventually. Exit plans could include selling shares to the principals of the company, or an IPO, in most cases. Whichever one it is, what’s important is that angel investors want to see that you have a structured end-game pattern.

A sound management team

This is another thing angel investors look out for in businesses before investing. These investors look for people who are skilled and passionate about business success.

A sound management team consists of people with high experience in sales, marketing, manufacturing, research, human resources, etc. When it comes to a business management team, there are things angel investors look out for. They include:

  • Experience: it’s one thing to have a good idea and another to have the necessary expertise to make it successful. Therefore, your team should have existing technical, business, and industry knowledge to push that good idea to work.
  • Leadership: businesses with leaders of great capacity are what angel investors seek to invest in. For any business to be successful, there must be leaders who understand the company’s vision and strive to work towards it. They should be a source of motivation and inspiration to their team when it comes to meeting organizational objectives.
  • Commitment: Angel investors look for businesses with dedicated members.
  • Determination: this is important for any business, most especially if you’re looking for investors. A team that works together showing, with the mindset of pushing the business forward to make it successful, is what angel investors look out for.
  • Flexibility: this has to do with adapting well to whatever the market brings and being at the forefront of others. When teams notice that their initial plan is likely to flop and they have a backup plan in place.

A reason to invest

There are various reasons why angel investors invest in startups; for some, they’re looking to fund anyone they have a tie with.

Some want to do what they’re passionate about by investing in a particular field like medicine, technology, or others. Others seek to invest in a business that will have a significant effect on the world.

Each angel investor has a reason or two for wanting to invest. Therefore, as a business owner, give them what they want. This means that whatever their reason may be, offer them a reason that’ll make them want to invest in your business.

Business potential

One of the key things that angel investors look for in a business is its ability to generate high returns. As a business owner, you have to show these investors that your product or service has a high potential for growth and profit.

Angel investors evaluate this by taking into consideration several factors, which include:

  • Market size analysis: here, they look at the size of the business target market. If it’s too small, it might not generate adequate revenue and can cause a hinge on investment. Where the market is large, it’ll be difficult to be heads above competitors and hold market share.
  • Assessment of market growth potential: for an angel investor to get attracted to your business, your market growth potential must be on the high side. They’ll want to know if it’s a mature market with stunted growth potential or a growing demand with high value.
  • Competitive advantage: Angel investors will check for competitive advantages that can boost the business and make it stand out. A distinctive business model and patent protection are some of the things that can serve as advantages over their competition. What sets your business apart from others will draw angel investors.

The extent their investment capital will be of help to the business

We cannot leave this off the list of things angel investors look out for in a business. Definitely, whoever is investing in your business would want to know how you intend to use the investment capital.

Angel investors are not looking for just anywhere to dump their money; they want a business with a fair fundraising plan. Angel investors want to know that you have enough money to reach your next goal, so they can help you raise additional funds.

An understanding of the business financials and key metrics

A business owner who has expert knowledge of the business’s financials and key metrics is likely to attract investors. You must demonstrate that you understand each of them and can articulate them. Some performance indicators that angel investors look out for here include:

  • Gross margins
  • The amount of extra capital needed in the future
  • The business’s monthly burn rate
  • Customer acquisition cost
  • The length of time the company begins to make a profit
  • Estimated revenue growth
  • Earnings before interest, taxes, depreciation, and amortization (EBITDA)
  • Customer’s lifetime value
  • Key elements of gross income and expenses
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What angel investors look for in a business conclusion

It is important to note that, aside from the aforementioned points, an interesting and professional pitch deck also attracts angel investors. In fact, you have to show them your investor pitch deck before they can agree to a meeting.

Angel investors contribute hugely to the growth and success of startup businesses. When you understand what these investors want, you’ll be able to position your business in a way that will attract them.

It is worthy of note that each angel investor has their own specs. What sits right with one person might not be pleasing to another. Therefore, while making your business effective and functional, strive to make it the right fit.

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FAQs about what angel investors look for in a business

What do angel investors look for in a business?

Usually, when angel investor decides to invest, they typically look for businesses with a well-structured plan and unique products. An excellent management team, high market demands, and growth potential are other factors they look out for.

What mistakes should I avoid when pitching to angel investors?

Ignoring the importance of creating long-lasting relationships and a lack of preparation are major mistakes. Also, you should take note of an unnecessary increase in the value of the business while pitching to investors.

How do I draw the attention of angel investors to my business?

Business owners can attract angel investors by putting in place the necessary things in their business. Ensure you have a good business plan, great team management, and a proper exit plan. These, among others, will make your business attractive to potential angel investors.

What amount of share value do angel investors get in exchange for their investment?

This is largely dependent on the kind of deal both parties have. Typically, angel investors seek share ownership of the business in the 10–30% range.

Angel investors conduct a process called due diligence. what is it about?

This involves investigating and examining information about the business they're looking to invest in. The due diligence involves:

  • Assessing the management team
  • Examining financial documents
  • Interacting with suppliers and customers.


June 4, 2023
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