You’ve got a great product, a global market, a strong team and watertight IP protection. You also nailed your investment pitch and you have the interest of an angel investor – how do you clear that final hurdle and get them to invest?
The first thing to remember is that no two angels are the same. What stimulates the investment juices of one, for example, the competitive landscape, or your ability to implement in an agile manner, may not in another. But there are some things a startup team can do to expedite the outcome they want, by ensuring their potential investor gets satisfactory answers to some fundamental ‘deal or no deal’ questions.
Entrepreneur and business coach Mac Attram says: “Remember that angel investors are primarily interested in themselves. That means they won’t make a decision unless they really understand what this product or service is or does, and whether there is a demand in the market place for it.”
They need absolute faith in the management team to deliver what they say they will, and they want to know not just how quickly they will get a return on their investment, but how much more they will make after that initial investment is returned. The team must be able to demonstrate the full potential of their business if the model works in the way they have described, and the investor will want to see an exit strategy, via a sale, merger or IPO.
These may seem like obvious things to cover before making an approach to an angel investor, but as Attram says: “Get them right, and they will invest.”
But what else are investors looking for before declaring they are ‘in’?
Giovanni Strocchi, an angel investor at Italian Angels for Growth, and CEO of smart data provider, ADmantX, says: “For me to consider companies as a sound investment proposition I look at a number of factors; international scalability, the competencies of the team, and those with a clear growth path. Companies with a clear concept, proof of viability, and metrics to evaluate success will attract my attention.”
“As an angel investor I’m not just looking to invest funding, I want to help guide and advise the company,” he says. “Factors that will deter me from proceeding with an investment include a lack of integrity, a team with no entrepreneurial or interpersonal skills and no commitment, and an incomplete evaluation of the project’s growth plan.”
For Isabel Fox , head of venture at White Cloud Capital, it’s all about the team. Fox, who is also an advisor and angel investor at several start-ups in the US and UK, including Adbrain, BitPay, Violin Memory, Tray.io and Cloud House, says: “Everyone talks about the team being the most, and quite simply, it is. A great team will find the big problem that needs fixing, attract great talent, continue to challenge thinking, have great networks, and be able to pivot as required.
“I would much prefer to see a strong team, ideally one that has worked together before, searching for the big opportunity and challenging the norm, than a mediocre team with just a good idea.”
The financials need to stack up, too.
“I always look at the numbers to see that there is a massive market opportunity. For me, a business needs to be able to generate revenue, not just user numbers, and if not, it’s a no go,” she says.
Glen Calvert, the CEO of Affectv, who secured close to £3 million in funding before the age of 30, says the deal makers or deal breakers can be summed up as the three ‘T’s; team, traction, and term sheet. Whether the team are smart, with a track record of success and whether they have what it takes to build a business during the inevitable highs and lows that lie ahead, are crucial factors for an angel investor.
He says: “The investor focus will also be on traction. Have they found product/market fit, are the KPI’s showing momentum and growth. Are they on to something special? In terms of term sheet, it’s a case of, ‘if there is someone else already at the table, I better move fast before they eat my lunch. They can’t be the one that got away’.”