What do angel investors look for in fundable deals — part 2

[Editor’s Note:  The following post, like the predecessor posted several days ago, was written by noted investor and author, Bill Payne, and originally published in May, 2010.  Emphasis has been added by the editor.]

In [a recent] post, I described the two most important characteristics of a fundable deal, that is, the entrepreneur/management team and the scalability of the business model.  So what are the additional features that can make or break an entrepreneur’s business plan?

  • Angels prefer to invest in local companies. Why? Angels want to be able to kick the tires before investing and then coach, mentor and serve on boards of directors of portfolio companies. Considering that most angels are part-time investors with multiple interests, investing in companies near home just makes sense.
  • Angels fund ventures with customer-ready products or services. Investors want to talk to customers or potential customers to confirm that the product or service meets an important need – a “must have” for users. Angels invest in painkillers, not vitamin pills. Entrepreneurs with products that are not quite customer-ready should be self-funded with the help of their friends and family.
  • A competitive advantage is important to angel investors. This could be a patent, trade secret or huge head start. Investors do not fund companies with products that can be easily duplicated by more mature companies with deep pockets.
  • Angels seek companies with solid sales and marketing plans. Too many entrepreneurs assume that products or services will sell themselves, which is never true. Angels want to fund entrepreneurs who understand the channels to be used for reaching customers with their products.
  • Angels expect entrepreneurs to have an exit strategy that will enable both the entrepreneur and investors to sell the start-up within five to 10 years to a larger public company, providing all shareholders with a substantial return.

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