As a new entrepreneur with a business plan, looking for business finance from an angel investor, its crucial that you understand what it is that the investor will look for before making their investment choice. In the same way that it many be unthinkable to start a business if you are not clear on the benefits that your product or service will be offering prospective clients and the specific needs that the service is offering a solution to, understanding the needs of the angel investor is a crucial step towards attracting the financing that your business may need.
The value of attracting the right investor to your business may be enormous. You are not only benefitting from the capital provided, but almost more importantly, you are gaining a huge amount of experience and access to contacts that your business will need going forward. Investors can help take a business forward by leaps an bounds and knowing what they are looking for will help you get your venture the capital it needs.
Most of the below issues will be includes in an effective business plan and may be provide key answers to questions that the business angel may have. The most important things an angel investor will want to know are:
- Details about your companies products or service
- Details about prospective customers
- Benefits of the product or service to the customer
- When your product is expected to be available for sale to the market
- Pricing and methods of payment
- Likelihood of repeat customers for your product or service
- Profit expected with a timeframe
- Details about competition
With regard to the capital to be invested, an angel investor will need to know:
- Expected development costs
- Expected revenue over the next few years
- Expected expenditure over the next few years
- Projected sales over the next few years
- Whether you as the entrepreneur have invested, or plan to invest capital in the venture
An investor will also want:
- Proof of customer satisfaction with the product
- Evidence that you have the investor’s interest at heart, in addition to your own
- Proof of your skills, leadership abilities and competence
- A picture of the positioning of your business in the market in relation to other companies in the same field
- An idea of how you plan to benefit from a market that has been developed by competitors
Investors are likely to be deterred from putting money into your business if:
- You don’t have the necessary qualifications or experience
- High levels of complex, advanced technologies are involved routinely in your venture
- You paint too rosy a picture of your venture’s future
- You are not objective and practical while assessing relevant facts
- You have not invested any money yourself
Generally speaking, angel investors prefer to be involved to at least some extent in the businesses in which they have invested. So the trend is for angel investors to get into start up ventures or small businesses, where their skills and experience in business will be useful in taking such an enterprise ahead.
Look for those who are successful, experienced, and who are willing to wait till your venture is ready to offer returns. You also need ensure that your investors have easy access to the capital they are offering. You shouldn’t have to pester your investor for money – it is both time-consuming and counter-productive. Remember not to agree to accept a smaller amount of money than what is actually required, and ensure that communication channels between you and the investor are always clear.
Consider the following facts of angel investing:
- Regular angel investors usually consider only three of the approximately hundred business investment opportunities they are offered in a year
- 85% of business plans are badly presented
- 50% of entrepreneurs do not have the ability to run a business well
Understanding the type of investor that you are targeting will also be a key issue. If you are approaching someone interested in green investments, ensure that you highlight those areas within your business plan. The investor will be looking for an opportunity where they can add value, as well of course create an attractive return. If you want to attract the right investor, ensure that you emphasise why your business is that opportunity
