Angel investors can be a lifesaver for a small enterprise – not only can they supply capital investment, but they often have years of valuable experience to offer to a business.
As viewers of Dragon’s Den will know, securing angel investment is no easy task. Although much of the BBC show is put on for our entertainment, many of the business owners who appear on the show make the same fundamental mistakes.
Here are five things to consider if you are seeking angel investment:
Inflated valuations
Probably the most common problem business owners have is to attach a realistic value to their businesses. Being so close to the business can remove almost all objectivity in some cases. Although you can use standard business valuations as a benchmark, there are no firm rules, especially if your business has not yet got off the ground.
Try to be realistic, and remember that a business angel could add a lot of value, even if they demand a larger piece of the pie than you had expected.
Poor planning
If you are serious about attracting investors, you must have a solid business plan, with financial forecasts in place. You need to show that you have a realistic plan in place, and be able to explain how you would react in a number of scenarios, such as the advent of an economic downturn, or if there was steep increase in the price of components.
Don’t get too attached to the plan, but show that you are serious, and that the numbers add up.
What is your USP?
Rather than focusing on the product or service you are offering, investors will want to know what differentiates your business from others in the market. What solution are you offering? What is your Unique Selling Point (USP)?
The business angel’s motives
Don’t always assume that an angel investor is in it purely to make money. Most angel investments provide poor returns, but some do exceptionally well. Many investors actually enjoy getting involved in new business ideas, and offering their expertise, as well as looking forward to the prospect of achieving a good Return on Investment (ROI).
Make sure there is a good fit between you and a potential investor, whatever capital they are prepared to invest. Make sure you can also offer a realistic exit strategy for both you and a prospective investor.
Who are you?
Both parties need to find out as much about each other as possible before a deal takes place. Some of the key questions to get answered are;
- What can the investor offer in terms of time, money and expertise?
- What experience and qualifications do the managers of the business have?
- Is there chemistry between the two sides?
- Could you actually work together if the incentive of a cash injection were not there?
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