13.3 Angel Investors

Valley of Death

- Angel investors get you over the hurdle that is referred to as the "valley of death," that stage when there is no steady stream of revenue and the company may be burning through cash - There is a high probability that the "startup will die off before a steady stream of revenues is established." - Once you successfully navigate through the valley and your business is at a later stage, venture capital may be needed.

5 main types of business angels:

- Entrepreneurial angels: entrepreneurs who have already successfully started and operated their own businesses, which they may or may not still be running. (Entrepreneurial angels are the most valuable to early ventures) - Corporate Angels: individuals who are usually former business executives, often from big multinationals, looking to use their savings or current income to invest. (Corporate angels may be very controlling) - Professional angels: doctors, lawyers, dentists, accountants, consultants, and the like, who use their savings and income to invest in entrepreneurial ventures (for the most part, silent investors) - Enthusiast angels: independently wealthy retired or semiretired entrepreneurs or executives who often invest their personal capital in startups as a hobby (tend to invest in several different companies, rarely take a role in active management) - Micromanagement Angels: Micromanagement angels are entrepreneurs who have achieved success through their own companies and want to be involved in the ventures they invest in. Many micromanagement angels demand directorship or a position on the board of advisors and expect regular updates on the running of the company. They will intervene in the running of the business if it does not perform to their expectations.

Reasons why angels will reject a pitch

- Geographical reasons, the angel does not operate in the same sector as you do, approaches don't come via trusted referral, ent's don't come across as knowledgeable or passionate, the market is too small, the financial projections exaggerated/not believable, or there is very little need for your product or service at all

Angel Groups

- In recent years, angel investors have begun to form groups to evaluate and invest in startups. It's not uncommon for angels to pool funds to invest in a venture, and they work together to conduct due diligence, analyze financials, and learn more about the opportunity. - Angel investing in entrepreneurs is also breaking barriers for women. There has been a major increase in the percentage of angel investors (many of whom are more likely to invest in women-led companies). In 2017, almost one in four angel-backed companies were led by women. - In stark contrast to the rise in women angels, there are very few minority business angels (defined as African American, Hispanic, Asian, or Native American), accounting for less than 13% of the angel population.21 In an effort to address this imbalance, groups like TiE Angels, a South Asian funding community, have been set up for entrepreneurs seeking minority investors

Primary reason an angel chooses to invest

- The primary reason why an angel (or anyone else, for that matter) chooses to invest is to earn money. - However, angel investment is not just about the money. Often experienced self-made entrepreneurs themselves, angel investors can add significant value by providing advice, skills, and expertise, as well as lucrative contacts. They typically enjoy the experience of mentoring others and the personal fulfillment of nurturing a new business and watching it grow.

The Angel Capital Association lists the following as the best time to seek angel investment

- Your product is developed or near completion. - You have existing customers or potential customers who will confirm they will buy from you. - You've invested your own dollars and exhausted other alternatives, including friends and family. - You can demonstrate that the business is likely to grow rapidly and reach at least $10 million in annual revenues in the next 3-7 years. - Your business model is in top shape.

What is an angel investor?

- anyone who uses personal capital to invest in an entrepreneurial venture

Angels are eligible to invest as long as they...

- are accredited investors, which means they earn an annual income of more than $200,000 or have a net worth of more than $1 million.

How much do angels invest?

- ranges from 25,000 - 100,000