Just like anything else, Media attention gives a view to something that is simpler and more interesting than it is in real life. In this case, I mean the program Shark Tank. What we see are very cute face to face presentations and immediate answers from the investors. If you think this will work in the real world, you are about to be in for a rude shock. Remember, Shark Tank is a TV show. It is Entertainment set up to get ratings. For real investments to happen, a whole lot more information is required than is exchanged.
For most people, Angel Investors are the first group they might consider after Friends and Family. In most cases, these are High Net Worth Accredited Investors. In other words, they have lots of money. The US Government is greatly concerned about scams and hustlers taking advantage of people so there is a minimum level of sophistication that is desired. This means that you are not facing celebrities as on Shark Tank, but you are facing experienced investors who want details. Just as in my last post, it will often turn out that Valuation will be the biggest issue. I want to get to that in some more detail in a later post. Today, I want to talk about the process of addressing Angels.
There are often groups of Angel investors who meet as a group to review possible investments, have live presentations, and question and answer with the principals of the company. The presentation consists really of two parts. The first part is a business review. This is an outline of the business plan and the idea behind the company. One very important part of this will be a biography of the principals involved. Remember, the investors are going to be interested in both what the idea is as well as who will be executing it. Investors will be greatly impressed if you have a background in the field you are investing in and management experience within it. They will be more impressed if you can show a successful sale of a previous company.
The second part of the presentation will be the request for investment. In most presentations, this will be pretty simple from the legal documents to come later. But you need to have a specific request for money and tell the investors what it will be used for. On top of that, the percentage of the company that is up for sale as well as the pre-money and post-money valuations involved. If there are multiple owners, they will also need to know the capitalization structure or who owns what.
Decisions can take weeks or months and are not likely to be the full amount required. For example, I know of a company that raised $5M from Angels and it required around 75 investors. This is an average investment of about $65K per investor. In general, you need to expect $100K or less from each investor. They know that most new ventures fail so they are expecting a high risk/high reward situation. So, they are not going to give anyone a large amount of their Net Worth. It is a a great way to lose that money.
So, that is the starting point with Angels!
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