The entrepreneurs that succeed in raising capital for their business know the formula for crafting a compelling story that earns the trust and investment of angel investors. James Magowan is an angel investor I met at an Investors Circle event. As an investment banker with Security Research Associates he helps companies successfully bridge the trust gap with investors to gain the investment dollars needed to grow their business.
And the path to building that trust has these five steps: Business Sense.
Angels in Our Midst: 5 Ways to Attract and Become Angels
The foundation of trust is a credible business opportunity. The business opportunity has to look "real" to the potential investor. The business opportunity's projections of sales and profits need to be supported with documentation supporting the assumptions. Investors expect to see large claims of future sales and profits.
1. Decide whether angel investment is right for you…
But those claims need to be based upon evidence documenting the size of the problem that the business' product offering will solve. And those claims need to be compelling on why the proposed solution will survive competitive challenges from other businesses. Big Problem, Big Solution. Angel investors see a LOT of deals. They are most attracted to investment opportunities that solve a big problem. More than anyone else they understand how risky it is to invest in early stage and start up companies.
Although the content of this article was correct at the time of writing, the accuracy of the information should not be relied upon, as it may have been subject to subsequent tax, legislative or event changes. Business angels invest their own money into businesses, usually in the start-up or early stages.
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They invest their money and bring experience and personal networks. Angels can take a very long-term view of their investments and have no pressures to return capital to their own investors. The most prominent sectors for angel investment are fairly consistent. So in the UK, sectors like financial services will obviously attract investment. But we also have a strong manufacturing sector, particularly outside of London, and interest in these non-digital businesses is also strong. Below are the sectors currently attracting the most investment but any well-prepared business can pique the interest of a business angel.
The UK Business Angel Market report contained the results of a survey of angels and found the top two sectors for investment to be healthcare and digital health; followed by biotech and pharma.
For legal purposes, it is easier to document transactions with an entity, as opposed to individuals, because it must follow certain formalities, such as filing documents with the Secretary of State, maintaining stock ledgers, and issuing stock certificates to investors.
For tax purposes, it is easier for an Angel to declare the funds given to you as a formal investment if the Angel pays the funds to an entity. Also, whether a potential Angel previously knew you or not, the Angel will likely have professional advisors, including an accountant, attorney, and business manager.
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Regardless of how much the Angel likes your project, these advisors will not recommend that the Angel invest in you personally. A formal entity for your business and one that holds the rights to your project, along with a detailed plan, will make you much more attractive to an Angel. In other words, forming an entity is very important! Despite being less formal than Venture Capital VC investors, Angels will still want to negotiate terms before they give you money. Your relationship with an Angel will begin with a term sheet, which is exactly what it sounds like; a description of the agreed upon terms.
Most of the terms will be standard, but if there are unique terms for the deal this is the time to address them.https://snelconswebte.tk
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For example, I have done many investment deals where the Angel had a significant interest in receiving perks, such as being guaranteed a part in a motion picture, a producer credit, or prominent product placement. It is important to know how much the overall company is worth before the Angel puts in her money so that the Angel can calculate how much interest in the company her money is buying.
This is usually the first term because it is the basis for other important terms, such as price per share. The Angel will likely want to have some input by serving on the Board of Directors, or at least the right to be present at board meetings. The Angel will likely want to have the right to receive certain information, such as company financial statements and project budgets.