As your business matures, the next logical step could be to expand. However, expansion usually requires funds – and creativity.
One option is to approach angel investors who can help in both regards. As generous as angel investors may be, they will have their own investment criteria.
Is it the right time to approach angel investors?
Angel investors are successful entrepreneurs in search of investment opportunities with promising businesses. They’re looking for a piece of the action, but they also have investment criteria and expectations.
Weigh up the pros and cons of angel investment, and assess your business’s health so you can decide if it’s the right time to attract angels.
What angel investors will expect
In exchange for funding, angel investors typically expect:
- An equity stake in your business – angels will often give a business money in exchange for equity.
- A return on their investment – angels invest in promising companies with an expectation of making money within a reasonable time frame.
- An exit – angels want to know what the end game is. For example, is a public offering or acquisition likely?
Assess your readiness
Your business may need funds to get to the next level, but that doesn’t necessarily mean it’s ready for angel investments. Here’s what you need to know as you consider approaching angels.
The stage of your business
An important criterion for attracting angel investors is the lifecycle stage that your business is in.
The best time to approach angels is when you can clearly demonstrate that their investment will help grow your business. If your business is still in its early stages, they’ll want to see ‘proof of concept’ including:
- A sound business plan.
- Working prototypes.
- Customer contracts.
- A record of sales.
Angel investors will want the same information for an established business, but they’ll also want to know what your vision is moving forward.
For example, do you plan on using their money to enter a new market, purchase manufacturing equipment that will allow you to increase production, or bring a new product to market? Make sure you can answer the question of how the investment will help your business grow and become more profitable.
If your business is at an appropriate stage and you decide that seeking investments from angels is the right approach, the next step involves gathering information. Get out there and:
- Source and access advisers – speak with your bank manager, accountant and work peers to gain as much knowledge on angel investment as you can.
- Read about angel investing.
- Network smartly – try not to simply approach the first angel investor that comes along. You’ll want an angel that brings more than just money to the deal. An ideal angel is one who is passionate about what your business is attempting to accomplish, with expertise and a track record of success that you can tap into. Do your research on possible candidates, finding out their past successes, how they operate, and the types and stages of businesses that they prefer to invest in.
Preparing to approach angel investors
Your business may be ready for angel funding, but are you? You will need to be thoroughly prepared with:
- A compelling pitch – why should angels invest in your business? What’s the opportunity and how will it benefit them?
- The details – be ready to discuss your business’s financial projections, its current and potential value, your competitors, any protections you have over your products or services, the proof of concept, and how you want to structure a deal with an investor.
- Paperwork – make sure all of your paperwork is in order, such as your business plan, accounts, IP ownership, and contracts with staff and suppliers.
Deciding whether or not to pursue angel investments is a big decision, but you’re never alone. Tap into the following resources as you weigh up the pros and cons of seeking an angel investment.