How do Angel Investors operate?
What is unique about angel investors is that they typically invest their own funds. It may be a one-time investment to help the business off the ground or a continuing flow of funds to support a company through its initial stages. It’s also becoming more common for angel investors create angel investor networks or to invest through crowdfunding platforms.
How much do angel investors typically invest in a company?
Angel investments can range from $25,000 to $600,000 a company, however, they can and do go higher. Most investments rounds also involve multiple investors.
What do angel investors get in return?
The first thing an angel investor generally (not always) wants in return is equity – a percentage of ownership in your company.
The amount of ownership the angel’s investment is worth is determined by dividing the amount of the investment by the value of the company. Example: A $50K investor owns 50 percent of a company worth $100K, 20 percent of a $250K company, and 5 percent of a $1 million company.
The second thing you need to know about angel investors is that they’re looking for an exit. Angel investors make their money when they can sell their ownership shares for more than they originally invested or the company is acquired.
How much of a ROI is an angel investor expecting?
Because most angel investors spread their risk between multiple startups, they like to expect a return of 10x or even 100x in 3-5 years to offset the losses they incur with startups that fail.
How long will it take to raise angel financing?
In general, and I’ve found this true for all forms of capital raising, it will take longer than you expect. The reality is that finding the right investors, due diligence, negotiations, filing the investment raise with the SEC, etc. do not happen overnight. They are all processes that demand time and attention to detail.
A rough estimate after you’ve found your investor:
Founders and management team
Who do angel investors invest in and why?
Angel investors typically seek out early-stage startups that aren’t big enough for venture-capital firms and often haven’t previously received funding from an angel investor.
What are Angel Investors looking for?
Because angel investors are often retired entrepreneurs or executives, they aren’t always motivated solely by financial return and are more likely to be persuaded by your drive to succeed, persistence and mental discipline.
Other strong motivating factors may be:
Giving back and mentoring another generation of entrepreneurs
Wanting to keep abreast of current developments in the business arena they were successful in
Nostalgia for the bootstrap days of their own startup
Wanting to keep some skin in the game
The thrill of competition
Feeling relevant by making use of their experience and networks
Feeling useful by providing valuable management advice and important contacts
Contributing to societal good by investing in areas that are aligned with their personal values
What stage of my business is an Angel most likely to invest?
Angel investors generally invest in early stage startups where the entrepreneur is passionate and demonstrates a good business model supported by a good management team.