Angel investing · Fundraising

How do Angels decide what to fund?

Anonymous

July 6th, 2015

Because Angel Investors are all individuals, it’s hard to determine the exact type of company each person will decide to invest in. There are obviously a few boxes a startup must check in order to be considered, but wondering if there are certain things about a company that make them more attractive for an Angel investor?


Peter Baltaxe Consultant, product leader, serial entrepreneur

July 6th, 2015

Here's my perspective as an angel investor. The short answer is similar to that of VC's. Team, market size, traction. Most angels I know discount the financial projections completely. Of the above criteria, assuming the boxes are checked, I look for traction. I don't have time to become an expert in a particular product category or core technology, and so at the end of the day, I look to the see if the intended customer (who understands their own needs the best) is voting with their wallet. I stick to industries that I know, and I look for products for which I might be a customer either as a consumer or a professional. For example, I don't know how to evaluate products for tweeners; I can't get a gut feel for whether they will take off. But I can more confidently evaluate products for parents of small children, because I am one. Find investors who know your space or are potential customers for your product. In addition to potentially investing they can be great informal advisors and can make relevant introductions for you.

I also look for products/services that are pain killers rather than vitamins.  The product should solve a big pain point for the customer, and it should be dramatically better than what they currently use.  Products that are only slight improvements over existing solutions will struggle to overcome the customers' inertia and risk aversion.

Bill Kelley

July 6th, 2015

From what I've seen, angels are most attracted to: 1.) industries in which they have direct experience and 2.) geographically local startups. 

Beyond that, the ideal investment parameters are similar to VC requirements: 'hockey stick' profit projections and 4X/+ ROI within 18 months or so.

Leo PhD Product development executive, serial entrepreneur and Angel Investor

July 6th, 2015

I agree with all the three Peters (what's the chance of that?!) above, and Bill, too. And there isn't much to add on that front, but I can add some suggestions on finding these Angels with the understanding above.

It is really not that different from Venture Capital firms except that it is most likely an individual, instead of a firm. Even VC firms rarely "venture" out of territories/industries that they understand well.

I think it is clear that finding these Angels, who know the industry you are in, can be difficult since there is really no centralized list for accredited investors with industry info (this might be a great startup idea). For tech, it's not too bad, but for any other industries, it can be a tough job. Well. fundraising is a full-time job all by itself.

A good way to find them would be to go to Angel groups, like the Keiretsu Forum (international exposure) and other local Angel groups locally, like the Alliance of Angels in the Northwest US. Another way that I have told other companies to find the right investors is to  go on websites like Crunchbase, and look up companies similar to yours. Some of these companies' listing include their investors all the way back to their beginning. Most of these Angels are very accessible on LinkedIn and some would even list their emails.

Omar Hakim Technology Commercialization & Patent Monetization Professional | Expertise in Management Consulting & Startup Investing

July 6th, 2015

Hi Ryan, Typically, angel investors are members of angel networks. Most angel networks will poll their members and determine what kinds of deals their membership wants to see. You can contact the executive directors of these angel networks before applying and ask about their preferred deal profile. That will save you from - for example - pitching an iPhone app to an angel network that wants to see early stage oil & gas deals and late stage medical device deals... I recommend you contact the Angel Capital Association ( www.angelcapitalassociation.org/) for a current list of reputable angel networks. Good luck! Best Regards, Omar Omar Hakim Managing Director, Hammersmith Ventures m: (512) 577-7000 e: omar@hammersmithventures.com w: www.hammersmithventures.com

Peter Kestenbaum Advisor, Investor, Mentor to Emerging firms

July 6th, 2015

Industries or areas they know...  ( If I have financial resources because I ran a chain of 9 retail outlets during my working career,  I look to fund retail )

Areas where they have contacts who can add value or make a difference in their investment..  (frequently the same but many times not ....   )

Areas where they have invested prior..  You might find someone who funds music service startups... 

Peter Bartnik Product and Business Development Executive for Software and Services

July 6th, 2015

1. Industries or technologies the Angel knows.
2. Industries or technologies the founder has experience in, and some degree of mastery/competence
3. The market segment targeted, then the opportunity as described by the founder.
4. Competitive activity in the segment. Has the segment/opportunity already been VC funded and to what degree?
4. Most important, the founders/team track record, and/or their ability to describe the industry/opportunity landscape and think on their feet.

Rick Normington Dean, Dept Chair and Professor at Sierra Nevada College

July 6th, 2015

First, since angels will invest in start-up or even pre-start-up ventures - whereas most institutional VCs will not - they take more risk hence look for higher ROI opportunity and scalability.  Second, most angels tend to focus on an industry with which they're especially familiar or for which they have a special personal affinity.

Peter Kemball Member Issuers Committee at Equity Crowdfunding Alliance of Canada (ECFA)

July 10th, 2015

Ryan,

For the kind of angel investor entrepreneurs benefit from dealing with, it is all about the founders as people. This makes sense if you frame the issue as hiring someone to manage money wisely over a period of years under conditions of great uncertainty. Product and market size perceptions change, will they adapt successfully in a commercial environment is the central issue?

Omar Hakim Technology Commercialization & Patent Monetization Professional | Expertise in Management Consulting & Startup Investing

July 10th, 2015

Hi Ryan,

It's difficult to predict what each individual angel investor is interested in - you just have to ask each angel that question.

What is much easier to do is to focus on seeking funding from angel networks, which have already polled their membership and know what kinds of deals their members are seeking.

For example, the Aggie Angel Network (http://aggieangelnetwork.com) has a clear list of deal criteria that we communicate to entrepreneurs who are seeking funding (full disclosure - I'm on the AAN board).

The deal criteria are based upon our member's interests and areas of expertise. Since we're so clear as to the kinds of deals we want to see, we only invite about 1 in 8 companies who apply to actually pitch at a member meeting. But we fund about 1 in 5 companies that pitch, since every company pitching has been pre-screened and is known to have angel investors in our group already wanting to know more.

So the short answer to your question is to get to know the various angel networks in your area and know the kinds of deals they're seeking, and then only apply to the angel networks that look like a good fit for your company (e.g. its stage, industry, capital requirements, etc.).

Good luck!

Kodjo Hounnake

July 6th, 2015

Ryan

This was a video I stumbled upon a while ago that explains a lot about what you're looking for; you can skip and start at 11:30min if you want:
https://www.youtube.com/watch?v=d6N6tu3A5PM