Dan Lok via FoxChronicle.com
Learning With Dan Lok
An angel investor is an investor who provides seed-stage funding for small startups and entrepreneurs. Angel funders are generally high-wealth individuals who are prepared to accept a certain amount of risk. They expect to receive an ownership stake in the company in return for their investment.
Family and friends can be angel investors, especially if they have a high income. An angel investor may provide a one-time investment to assist in the early stages of business development or an ongoing cash injection to support the company during its difficult beginning stages.
Companies may find angel investors more appealing than other forms of funding because they expect less in return for their investment. Other forms of funding are more predatory at this stage. In essence, an angel investor and venture capital firm are polar opposites.
An angel investor can provide startups with the money needed to foster innovation and translate it into business growth. Dan Lok explains how angel investors find businesses to invest in, giving a good understanding of how the process works.
Dan Lok: What Angel Investors are Looking For
Angel investors are looking for a solid return on their money. Typically, angel investments make a better rate of return than relying on the stock market, but when they fail, they can create a much higher level of risk than other types of investment. Only 40 percent of angel investments end up making money.
Angel investors are also looking for a competent management team. They need to see leadership ability and evidence that the management team is trustworthy, competent, and observant. A management team needs to have experts in research, sales, accounting, manufacturing, and human resources.
An angel investor wants to see a complete and convincing business plan. They need financial projections, marketing plans, and plans to enter the target market. They want to take part in companies with a developed vision of the future, including details of how they will grow their business.
Ready for Investment
Investors of this type want an equity ownership position in the company. Occasionally, angel investors give direct loans, but this is not as common as asking for a minority equity stake. Businesses need to be set up to allow for investment, and the owners of the business need to be ready to give up some level of control. Angel investors generally want formal agreements laying out the terms of their investment.
Angel investors are often looking for an opportunity to contribute their time to help a business succeed. They may take on a mentorship position, serve on the board of directors, or take a more active role on the leadership team. Becoming involved in this way means that an angel investor can keep track of their investment.
A Workable Exit Strategy
Angel investors need to see a variety of strategies connected to their exit from the company. They also need to see a comprehensive risk analysis. Many angel investors are patient and can wait a number of years for returns, but they all want some chronological plan for receiving their money.
What Sectors are Angel Investors Attracted To?
Generally, tech companies of various kinds receive the most attention from angel investors. These companies are the most likely to experience high growth rates, though they may also be high-risk investments. Internet and software companies take up most of the angel investor’s portfolio. Next comes healthcare, with mobile and telecom falling in after that. Industrial-sector companies have a lower rate of investment, followed by electronics and consumer products. Services are at the bottom.
If your company is on the lower end of the priority list, don’t give up hope on receiving angel investor funding. Having an excellent pitch deck, a workable business plan, and a way for the investor to exit with their money will help you attract someone that can give your business a boost.
How Much Money Do Angel Investors Contribute?
Every year, angel investors put more than $20 billion into U.S. startups. 225,000 people have made angel investments over the past two years.
Generally, angel investors contribute funding in the six-figure range. If you want an angel investor to give you $100,000, your company should be worth about $400,000. Getting a solid valuation for your company is key when it comes to drawing up a favorable deal.
Understanding the Game
Many businesses may not believe that they are eligible to court angel investors, but if they have a solid growth plan and a good company valuation already, they may be able to get this early-stage funding. Dan Lok wants companies to understand how angel investors may find them, in an effort to bring more value to the business world.
Dan Lok via FoxChronicle.com