By Kevin Marshall
CFO and Vice President
Global Investment Strategies
A lot of our clients are successful enough to help others. This manifests itself through selfless charitable works and giving. It also manifests itself through investments, specifically as Angel Investors. I spent time exploring what Angel Investors look for in good opportunities.
With any angel there are two things that are important. The timing with an angel investment needs to be correct, and the match with the proper angel needs to be correct. If looking for an Angel Investor, here are some other things to think about to help determine if an Angel Investor is in your future.
Most angel investors are involved investors. Our clients are high net worth individuals who have an interest or passion for a particular industry or type of business. They have had a successful past with similar businesses and are looking to capitalize on their expertise and leverage their capital.
Entrepreneurs need to recognize this fact about angels and understand that taking in angel investment capital is akin to taking on a partner. An angel investor’s capital buys them access and influence. The entrepreneur needs to be open to someone else influencing, and in some cases even making decisions in their business.
Angels look for uniqueness. They want to invest in someone and something that has a strong potential for significant growth. Leveraging capital in a high-risk investment means that the upside potential return, coupled with the strength of the management team, offer a strong possibility of significant double digit returns in 3-5 years. These types of returns come from companies that offer a unique value to a particular marketplace. The uniqueness can come from many different sources. What’s important is that it is sustainable, and difficult to copy.
Angels are not crutches. If a business is in need of capital and the reason behind this is poor practices on the part of the ownership and management team, the possibility of securing angel investment money is very slim. Angel investors are not looking to invest in mistake riddled environments. If you seek angel investment capital, make sure that your business operations and management practices are solid. They don’t have to be dead solid perfect, but they cannot be the underlying cause for your need for capital.
Angel investors also have their own unique place in the spectrum of capital sources. In the earliest stages, businesses are most often funded through the owner’s own capital and the capital of friends and family. It is rare that an angel investor will put money into a pure start-up operation.
The primary exception to this is if the business has a completely unique product that requires research and development. Intellectual property that you can patent in the form of a product can attract investment capital, particularly if you can substantiate the market potential for the product.
Entrepreneurs also need to recognize that securing angel investment money is a time-consuming process. First and foremost, there needs to be a solid business plan that clearly and succinctly lays out the vision, goals, and steps to be taken to turn ideas into reality. Supporting the business plan are financial projections supported by substantive market research, if not real live market data. Once the business plan and financial projections are solid, the business owner then needs to find the angel investor.
Be specific in how you go about searching for an investor. Ask your contacts in the accounting and legal professions. Ask other owners who have secured investment capital. Look for angel investment groups where the investors operate together to screen and analyze investment opportunities.
In summary, angel investment capital is valuable for businesses on the verge of some strong growth potential tied to uniqueness. Recognize that it is a “partnership” in some ways, and the process of securing the investment capital can be long and very time consuming.