Great Ideas: Angel investors' top questions

While entrepreneurs often struggle to find interested angels to invest in their business, for their part, angels often struggle to find suitable deals. Before pitching your company to a potential angel you need to understand which aspects of your business will carry the most weight in his or her decision, say Philip Kotler, Hermawan Kartajaya and S. David Young in their book Attracting investors: A marketing approach to finding funds for your business. Here are the major questions that angels ask:

1. Does the entrepreneur inspire confidence? Angels place considerable weight on the quality of the entrepreneur. A business is run by people and if the people are wrong, the business will fail. Entrepreneurs must convince angels that they have both an entrepreneurial capability and a team with sound management skills.
2. What is the funding to be used for? Given that angels tend to fund early-stage ventures, they strongly prefer that their investment goes directly into the company being capitalized. Although there are exceptions to this rule, investors normally exit after the angel stage of finance.
3. Does the venture fit with the angel’s own investment profile? This is why it is so important for capital-seeking entrepreneurs to target their pitches. There is little point in going after angels who don’t invest in the company’s industry or whose risk profiles don’t match the business. Prior to approaching angel investors, entrepreneurs should first understand their particular characteristics. What factors motivate the angels to invest, and what industrial sectors attract them?
4. Does the business have genuine growth potential? Entrepreneurs need to show that the business can take off. The business must have some unique characteristics that are likely to win customers against competition in the chosen market niche. Is the venture doing something unique, and if so, is that something difficult for potential competitors to copy? Is the market big enough to support the firm’s growth and cash-flow projections? Also, most angels are wary of single-product businesses; they like focus, but can the business develop multiple income flows?
5. Is there a credible business plan? Most angels want to see a business plan before investing. A good plan will discuss the vision and mission of the company, and will also show financial projections, a marketing plan, a sales plan, and an outline of major operating controls. At this stage the plan should be short, concise and to the point.