Ever since the financial crash of 2008 and ensuing recession that followed, many small businesses struggled to obtain crucial investment necessary to develop their business from traditional sources i.e. Banks.
An Angel Investor in short is usually a high net worth individual who, in exchange for a percentage of the value of the business (this is called Equity), will invest capital in the business. Some Angel Investors invest alone, but it is also common for groups of Angel Investors to club together to support a start-up business or a business looking to expand.
Often an Angel Investor is preferable to a traditional bank loan as they bring with them not only financial investment, but also expertise and experience. As an equity stakeholder, the Angel Investor also has an interest in the business doing well and will be keen to see a return on their investment.
Understandably, an Angel Investor is unlikely to hand you a large sum of money on the off chance they will see a return, there are a number of factors an Angel Investor will want to see before investing, and it is therefore vital that you understand them.
Here is a list of the top 5 things an Angel Investor will look for in your business:
A key term used by investors is “credibility” – an Angel Investor is unlikely to be convinced by your product or idea alone. They will want to know who the people behind the idea are and are they credible?
Before approaching an Angel Investor you should think about your team, how do you demonstrate their knowledge and attributes? Is there anything about them that might put an investor off? Remember, an investor will do their research on the people you are expecting them to work with. Think carefully about social media and Linkedin – how these portray either the individual or the business to any would be investor.
A Completed Business Plan
Your idea or business could be completely revolutionary, but if your business plan doesn’t add up, it is unlikely to impress a would-be investor.
It is important that you fully understand key terms such as turnover, profit (how that differs from turnover) and loss and that you are able to present these in a well-constructed business plan.
You need to be able to show that the valuation you have placed on your business is realistic and accurate.
For example, If you approach an investor with an offer to invest £50,000 for 10% of the business you are valuing the business at £500,000 – the investor will want to know how you arrived at that valuation.
In addition to be credible, it is important that you demonstrate integrity. Be honest about problems the business has encountered, where it could do better and any problems you envisage. Honesty is the best policy
Understand the Risk
By its nature business is risky. Especially start up businesses. It is important that you demonstrate to an investor that you understand this risk. You should consider strategies for developing the business and expansion. You should also consider an exit strategy – an investor will not want to be tied to your business for ever, they will want to know at what point they can make their return and consider extricating themselves.