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10 Things Angel Investors Look For – The Startup Evaluation Process

Last updated: October 12, 2022
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Angel investors enjoy investing in startups, especially in their early stages. It's an exciting and rewarding adventure, and they have the opportunity to provide new startups with the much-needed capital to get their business off the ground.

 

As a founder, if you want to compel angel investors to take a chance on your startup, you need to be prepared. Investing in startups for angel investors is risky. With over 80% of startups failing within the first few years, angel investors often rarely see a return. In order to secure startup funding, you need more than a great pitch deck and a compelling presentation. You should have a thorough understanding of what your potential angel investors are looking for in an investment opportunity.

 

Preparing to meet with angel investors can be stressful. This article will help you prepare by guiding you through 10 things angel investors are looking for in their next big startup during their evaluation process.

 

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    Why Choose an Angel Investor to Invest in Your Startup

     

    Before diving into what investors look for, knowing why angel investors are good for your startup is just as important. Angel investors are high nigh worth individuals. They can choose to invest hundreds of thousands of dollars to millions in ventures they see as having a high potential to turn a profit.

     

    Angel investors are often accredited and are former entrepreneurs themselves. They have a wealth of knowledge in your industry. They can offer startups valuable information that can help their startups succeed. They offer entrepreneurs connections and networking opportunities that can help you find new customers, partners, and other people who may help boost your business's success.

     

    While there are many benefits to working with angel investors, they choose startups that align with their values in exchange for ownership or equity in the company. Just how much you choose to give away is up to you and negotiable once you've convinced an angel investor to take a chance on you. Because they have a shared interest in the success of your startup, they often want more control and to help you manage your startup.

     

    With all that being said, angel investors have deep pockets and expertise in your industry. They provide you with the funds to hire new employees, rent an office space or a warehouse, invest in new supplies, improve your marketing, and more. Everything you need to help your business take off.

     

    10 Things Investors Look for in a Startup

     

    There are a lot of angel investors across a number of industries. Most founders choose to have meetings with angel investors who are familiar with the general industry your startup is rooted in. However, no matter the background, all angel investors are looking for the same factors in any startup. These are 10 things most angel investors look for when you pitch your idea or business.

     

    1. That You Have a Robust Business Plan 

    – Angel investors won't invest their money in just any startup with a good idea. They want to see a well thought out business plan. You need to show investors that you aren't just passionate but have a realistic plan for the next phase of your business. Your business plan should be detailed to show information such as financial projections, marketing plans, information on your market, and more. 

     

    2. Show You've Achieved Product-Market Fit 

    – Product market fit means your product is in a good market where customers understand and can find a use for your product. Investors want to see that people are buying or are interested in your product or service. Beyond showing customer interest, show they are buying consistently, and you are earning more customers and followers or garnering media attention. 

     

    3. That You Have a Large Target Market 

    – Investors want to see that your startup is targeting a larger market. If your product or service can interest a larger market, it means your startup could potentially grow and scale exponentially. You'll want to present your startup's market as it exists, what it looks like, and what percentage you realistically plan to capture within a reasonable time frame. 

     

    4. A Strong Founder and Management Team 

    – While investors need to know the startup's idea, they often view the founder and management team as just as important. You can have a great idea, but if you or your team don't have the skill, drive, or experience, your startup will be unable to grow and thrive. Founders need to carefully decide as they build the team they want to help their business grow. Investors want to know if the founders and their team are willing to listen if they have experience, what background they have, and more. 

     

    5. Want to See What Makes Your Product or Service Great 

    – Angel investors want to see a demonstration as to what makes your product so great. Show why your product or service is unique and why it can provide value to your target market. Show off your major milestones, the key differential features compared to your competitors, and if there are any plans to improve your product or service. You can show any great customer reviews or business partner or vendor feedback. 

     

    6. They Want the Opportunity to Be Involved 

    – Some angel investors want to be able to actively contribute their time to help in the startup they choose to invest in. Whether they are acting as a mentor, providing resources, giving feedback, or taking on an active role as a manager, they want to be more involved beyond providing funding. Their active involvement makes them more committed to ensuring they receive a return on their investment. 

     

    7. You Have a Deep Understanding of Key Metrics 

    – Investors are looking for founders who understand their startup's financials and key metrics. When presenting your business to potential angel investors, you need to show that you have a handle on the ins and outs of your startup. Show numbers and figures, including the monthly burn rate, lifetime value of a customer, what makes up your revenue, monthly expenses, time to profitability, and more. 

     

    8. That You Understand the Risks 

    – Every startup is going to have its own unique risks. What angel investors want to know is the detailed risks and your plans to mitigate those risks. Does your startup have precautions in place to help reduce risks? You'll want to be prepared to answer questions on the risks assessed in your business plan, including:
    • Are there any technology risks?
    • Are there product liability risks?
    • Are there any legal risks, and is the business in compliance with laws and privacy protections? 
    • What are the principal risks to the business?
    • Do you have a plan in place to manage the risks? 

    The more you can show that you are prepared to not only manage risks but to reduce the chance of risks occurring, the more likely angel investors will see the potential. 

     

    9. That You've Made Traction 

    – Investors want to see that your idea has made traction. They hear thousands of pitches annually, and very few pitches make it past the pitch stage. If you can show your startup has already made significant momentum. Your startup can show its momentum if you've already begun to hire top talent, have early customers signing on, and have begun to gather resources. These steps show investors that you're driven to make your startup into a real viable business. 

     

    10. A Firm Exit Strategy 

    – The main reason investors are looking to invest in startups is to see a return on their investment. Investors are prepared to wait until your startup becomes profitable and understand their investment is a long-term investment. They still want to know what the exit strategy entails for them to receive their money back plus profit. It can be the sale of shares to principles, acquisitions, IPO, and a reliable time frame. 

     

    Angel investors want to invest in a startup with a deep understanding of their business and a solid business plan. They want to see that your plan shows the potential to grow and scale exponentially. You need to demonstrate your credibility to increase your odds of securing funding to accelerate your startup's growth. Investors will consider many of these factors, but if you show you are passionate, you have the drive, and a great team to back you up, that may be just enough to convince investors you have potential.

     

    When you're ready to start on your journey to find the perfect investor, it can be overwhelming. Get the help you deserve to get your startup off the ground. Angel Match can match you with over 90,000 angel investors and venture capitalists in one place. Learn more about how Angel Match works here.