Angel Investing 101
[This is adapted from materials provided by the Angel Capital Association and Angelsoft. You can also see BAN's own list of key readiness questions here.]
Angel investors are wealthy individuals who invest in ventures by reserving a portion of their total investment portfolios through direct, private investments. For members of the Billiken Angels Network (BAN), these investments could be in seed, start-up or established companies in any industry.
Our members’ goal is to achieve higher returns than the typical public markets provide. It is also important to know that as the risk level of a business prospect increases (for example, start-ups are much riskier than established firms) the returns angels expect grow, sometimes considerably.
Most angels are active investors - who contribute their time and experience, as well as offer introductions to valuable contacts essential to the company’s success. Is angel funding right for your company? Below is a checklist that will help you to decide if and when you should seek an angel investment.
Management team
Target customer
Market size
Competition
Technology
Protected intellectual property
Sales strategy
Profit potential
Capital needs
Financial projections
Exit strategy
Business plan
Angel investors are wealthy individuals who invest in ventures by reserving a portion of their total investment portfolios through direct, private investments. For members of the Billiken Angels Network (BAN), these investments could be in seed, start-up or established companies in any industry.
Our members’ goal is to achieve higher returns than the typical public markets provide. It is also important to know that as the risk level of a business prospect increases (for example, start-ups are much riskier than established firms) the returns angels expect grow, sometimes considerably.
Most angels are active investors - who contribute their time and experience, as well as offer introductions to valuable contacts essential to the company’s success. Is angel funding right for your company? Below is a checklist that will help you to decide if and when you should seek an angel investment.
Management team
- Is your team experienced, driven, coachable, and willing to cede some control and decision-making authority to outside investors?
Target customer
- Do you have an identifiable market segment?
- Is there a demonstrable and significant demand for your proposed solution?
Market size
- Are the projected revenues in your product category large and growing?
- For firms seeking major investments, can your firm achieve a several hundred million dollar market share?
Competition
- Have you identified potential competitors?
- Do you understand your company’s differentiation points?
- Will true barriers to entry help your company to maintain a competitive advantage?
Technology
- Have you proven the concept behind your product or technology?
- Can this be confirmed with data or by objective experts?
- Have you built a comprehensive business plan to commercialize the technology?
Protected intellectual property
- Have you protected your intellectual property?
- Have you performed an exhaustive search to be sure that you are not infringing on patents or trademarks held by others?
Sales strategy
- Do you have a plan to achieve widespread market penetration for your products and services?
- How will you do this as efficiently as possible?
- Will you create an internal, direct sales team, or will you rely on external channel partners?
- Start-ups: Have you achieved pre-sales or contractual commitments for your product or service?
- Established firms: What are your historical order levels and what sales contracts do you currently hold?
Profit potential
- For start-ups - Can you demonstrate how high margins (+15%), consistent cash flow growth, and growing market share and valuation of the firm will be achieved?
- For existing firms - Can you demonstrate how high margins (+15%) and consistent cash flow growth will be achieved?
Capital needs
- Do you require between $50,000 (current SLU students can ask for as little as $5,000) to $500,000 to finance growth activities, including product development, recruiting key staff, launching sales and marketing activity?
Financial projections
- Have you developed reasonable financial projections - including an income statement, cash flow and balance sheet and supporting spreadsheets - based on logical, realistic assumptions?
Exit strategy
- For start-ups - Do you have a clear exit strategy that will enable angel investors to generate a return of at least ten times their initial investment within five to seven years?
- For existing firms - Do you have a strategy that will enable angel investors to generate a return of at least 15% for the foreseeable future, and ideally an exit strategy through the sale, acquisition or public stock offering of the firm?
Business plan
- Have you developed a comprehensive business plan that articulates your key business strategies for how you will grow your venture?
- Is your plan ready for presentation now?
