The top three things angel investors look for - Angels Den
Bill Morrow is the co-founder of Angels Den, an angel-led crowdfunding platform where angel investors and experienced businesspeople can invest in SMEs. Once one investor is onboard a business, other investors and the crowd can also invest - an approach that combines innovation with the security and endorsement of an investor. They were chosen by VSU-funded startup Mous in order to raise more funding, smashing their £70,000 target to raise £110,000 in just a few days through the platform. Here Bill talks about the top three things that angel investors look for.
When it comes to creating and growing a business, angel investors can provide you with that much-needed investment, expertise and support. An injection of capital and knowledge will not only help get your company off the ground, but also increase your chances of long-term success. So if you find yourself pitching to an angel, it’s vital you know what they’ll be looking for from you and your business.
At Angels Den, we have been working with angel investors for over 8 years, and we now run the UK’s largest angel network and angel-led crowdfunding platform. We have therefore compiled our top three tips on how to attract an angel investor, so you know what to do the next time you pitch:
1. Do you have a credible and likeable management team?
For most investors, the people behind the business are more important than the idea itself. It’s one thing to have a great idea, but another to have the experience and business skills to execute it. When an angel invests, they become part of your company. They are not only investing in your business, they are also investing in you. Experienced investors know all too well that it’s the determination and resourcefulness of an entrepreneur that gets a business through the inevitable hard times.
Often, investors will want to see that at least one of the founders has been involved in a startup before, or that they have an experienced advisory board that includes a few grey hairs. They also know that one person can’t be good at everything, from marketing to finance, technology and legal agreements. So know your strength and build a killer team around you. If you can’t afford them right now, line them up to start when you have the finance or entice them in with some founder equity shares.
2. Is there an attractive amount of growth potential?
Be sure you can demonstrate that this business has the potential to be worth £10m to £100m in the future. Investors will only be willing to put their cash and time into a business if the potential upside excites them. This means knowing your market and proving that you’re solving a real problem. A great way to show growth potential is early traction, a growing and dedicated loyal core of users. This is not always possible without adequate capital, but demonstrating traction on a shoestring budget is a great way of showcasing market interest and potential. If you can prove it works in one small area, Angels will be able to see how that performance can be replicated on a meaningful scale when you have sufficient funding on board.
When forecasting, however, entrepreneurs need to be realistic, as outlandish claims that don’t match reality will only put investors off. Don’t just look at the total worldwide market potential and pick a percentage share! Look at how much of the market you can realistically attract and service with your marketing budget and infrastructure. The more research, evidence and analysis entrepreneurs can find to back up their numbers, the more persuasive they’ll be when pitching.
3. Can the businesses be scaled easily?
Investors are always looking for the next Instagram, Snapchat or Twitter - startups that only needed a minimum viable product to get to market, which could then scale quickly, raising cash for servers and staff along the way.
If your startup relies on a large workforce or has long sales-cycles, then it’s going to be hard to scale quickly. If you are active on social media, I am sure you will have come across the following quote: "Uber, the world’s largest taxi company, owns no vehicles. Facebook, the world’s most popular media owner, creates no content. Alibaba, the most valuable retailer, has no inventory. Airbnb, the world’s largest accommodation provider, owns no real estate. Something interesting is happening.’’
Yes, something is happening: scalability. All the aforementioned companies implement a structure, which allows the public to utilise their own assets for profit, with minimum input from the company itself. Remember, as much as angel investors like to work with exciting new startups and share their expertise, they do also want to invest in a company with the potential of delivering a good return.
*The blog is not intended to constitute, nor shall Angels Den be held to have provided, any financial advice whatsoever. All comments are for general information and use only. In particular, the content does not constitute any form of advice, recommendation, representation, endorsement or arrangement and is not intended to be relied upon in making (or refraining from making) any specific investment or other decisions.