For many first-time founders, angel investors are that first investment to turn a dream idea into reality. But who are these people and what are they looking for? If you’re hoping to fundraise successfully from individuals, it’s crucial to understand them.
Who are angel investors?
An angel is often a high-net-worth person who invests their own money into early-stage startups in exchange for equity ownership. As they are investing their own capital, they’re often driven by a passion for the space you’re in and an opportunity to mentor the next generation of business builders. Each angel operates differently, some investing with their own personal mandate (say, climate) or on a personal level based on relationships with founders.
The right angel investor can accelerate your business. Many have built businesses themselves and provide mentorship, industry expertise and access to a network of potential clients, and can help open doors for future funding rounds.
What are they looking for?
Angel investors take the highest level of risk at the earliest stages, though that can be reduced by tax incentives like SEIS/EIS. They’re therefore looking for startups with the potential for growth and a large return on their investment, often seeking a potential 10x return. They’re looking for the following things to make their decision:
- Strong team. For many investors, the team is the most important factor. People first, ideas second. This could be founders with deep industry experience, a clear vision, resilience and a complementary skill set. They want to know why this specific team is uniquely qualified to solve the problem at hand.
- Large market. Angels want to see that your startup is operating in a large market. To achieve the high returns they seek, the business should also be highly scalable. You should be demonstrating a clear understanding of your market size and its potential for growth.
- Traction. In a world where the cost of building technology and launching products has never been lower, a great idea is not enough. Angels want to see proof that your concept is viable and that the market wants what you’re building. You should be able to demonstrate not only that there’s demand from the market, but also that you’re able to get in front of potential customers.
Angel investors are looking for a great story, backed up by evidence. They need to believe in the founders, be excited by the market you’re building in and see a credible path to a significant return on their investment.