Entrepreneurship: What Angel Investors Want

dollars As the venture capital market continues to shrink, there is an increased burden falling on the shoulders of angel investors to fill the gap. With startups requiring less capital thanks to the lower costs of software and development, angels figure to be a growing source of seed capital for early-stage ventures.

But what do angels investors look for in an investment opportunity, and is that criteria much different than your typical VC?

As Kevin Krauss explains in the video above, the advantages of working with an angel investor are pretty clear. Angels are typically more patient, and active angels will have a higher invest-rate than your garden variety venture capitalist. Finding angel investors really boils down to networking.

One of the key points made in Tim Draper's comments was the importance of solving a problem. In other words, what pain-point does your venture solve? In many cases, entrepreneurs look to solve a problem they personally want to see solved for their own need or benefit. For example, Steve Chen and Chad Hurley founders of YouTube, wanted to upload videos taken at a party but couldn't find anywhere on the internet to do it, so they built YouTube to solve their own problem.

Perhaps the best advice on securing angel investment can be found in Jason Cohen's essay entitled '4 ways to get automatically rejected by an angel investor'. Josh has been a startup entrepreneur and is now an active angel investor, and he outlines four key pitfalls that entrepreneurs should avoid when preparing to pitch to angels.

1. (Don't) Be dismissive of the competition. - Failing to acknowledge competition and/or addressing the advantage(s) they really do have, is a major faux pas. Give proper recognition to your competitors and then explain coherently how they are under-serving a portion of the market or how they won't be able to compete on your level.

2. (Don't) Have five-year projections. - Angel investors are wising up to the notion that 5-year projections are a waste of the paper they are printed on. You're just guessing, and they know it. Don't bother. Focus on other timelines, like how quickly you can become cash-flow positive.

3. (Don't) Gloss over your strategy for customer acquisition. - Spend more time on customer acquisition with real details on what your actual strategy will be. Be creative and be specific, don't just do what everyone else is doing.

4. (Don't) Do what you think you “should” do instead of what feels right. - Plain and simple, think for yourself. Your mother always told you honesty was the best policy, and in the case of raising angel money, honesty and original thinking will get you further than following what the herd is doing.

TAGS: Angels, Capital, Entrepreneur, Entrepreneurship, Funding, Investors, Startup

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