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Understand the expectations of an angel investor

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in Business Management,Small Business Tax

Angels expect to make money on their investments.  A desired return of five to ten times their initial investment within a five year time frame is common.  Thereafter, the level of expected returns may vary significantly depending upon the exit strategy of the angel. 

Angels also like to see the entrepreneur investing his or her own capital in the startup.  This shows faith in the business idea.

Angels want to see a defined product with a large market potential.  Good ideas alone are not sufficient.  The entrepreneur will need to describe a focused launch strategy that will catapult the business idea past where others have failed.  Evidence of an already-tested positive market response to a new product or service will further illustrate that the start-up has gained some of the foundational requirements of a successful new business.

These investors expect particulars about the management team and their experience.  Many desire advisory or board membership roles within the business to ensure a degree of control over their investment. 

As the relationship proceeds, angels usually will require accurate projections, accounting, and analysis of the given market.  Being informed of the expected returns and the accompanying level of profitability will reassure the angel that he or she has made a prudent investment.

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zelena@deleaoil.com January 23, 2011 at 7:20 pm

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