Angel Investors – A Homework Kit

photo credit: bogenfreund

The following is a guest post by Sahail Ashraf.

An increasingly effective way of raising money for your business is by finding and wooing an Angel Investor. As the name suggests, this type of investor is there to act as a bit of a lifesaver, offering ready cash to those companies and individuals who they feel have something worth putting money into.

The biggest mistake that entrepreneurs make when they approach an Angel is thinking that they have it covered, when instead the opposite is true. Angels, no matter how much money they have to play with, are dead serious about the cold, hard cash they give away. So doing your homework first should be viewed as essential. Many an entrepreneur has been laughed out of the room by Angels who discover that they are dealing with someone who is unprepared.

Preparedness creates confidence, and confidence seals deals. So take a good look at the following points, and see if you and your venture fit the profile.

If you can say yes to all of these questions about your company, then you have a strong case for investment from an Angel. This does not guarantee investment, but it sets you up for looking investable.

If you can’t say yes to any of these, then you have a problem.

1. Is your product selling, right now? If it isn’t, why would they invest?
2. Have you got a rock solid management team? Even if it is just you?
3. Can you sell? Sales make bottom line.
4. Does your company compel people to buy? In other words, do your customers buy from you for strong reasons? Is there an angle that people can’t resist?
5. Is your product so different that it will take sales from your competitors? In other words, will your product or service be so different that it will potentially disrupt the industry?
6. Is your business likely to make millions one day? Don’t forget that Angels are using their money. ROI is more than important, it’s necessary.
7. Have people already invested in your company? If they have, you have earned credibility.
8. Is there a clear exit strategy? Can you see an IPO in the future, or an acquisition?
9. Can you offer transparency? In other words, can you demonstrate how you will communicate regular updates to investors?
10. Have you or anyone on your team made successful companies before?

You don’t have to answer ‘yes’ to all of these to be successful. But Angels are less common now than they were about six months ago. And the more dead pitches you make, the more Angels you will lose (they tend to talk to each other, and often group up into flocks).

Angels can and do invest, but only if they see a realistic company with real potential. Spend some time on these questions and see if they work for your company. If they don’t, make them work, or find plausible reasons why not (after all, this may be your first company). But it is pointless to try and ‘find an Angel Investor’ without doing this kind of homework.

Sahail Ashraf is a freelance writer living in Devon, England. His blog can be found at www.smarthomeworker.com.