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May 13, 2010

What Do Angel Investors Want?

Are you starting a business, or looking to expand your business? Angel investment may be a good option for you.

“Angels” are experienced investors, and usually are successful business people in their own right. That means they can provide you with more than just capital – they can provide you with valuable advice to help grow your business.

If you are seeking angel investment, then you should know how to approach these investors correctly. And in order to do that, you need to understand what angel investors are looking for, and how they judge potential investment opportunities.

Here are four things angel investors want to see before they invest.

1. Excellent return on investment (ROI) potential

Angel investors will never invest if they do not believe they can make a solid profit out of the investment, because they are taking on the risk. Angels are looking for “home runs” – investments that allow them to make as much as 100 times the investment amount. According to a study by the Center for Venture Research, angel investors earn an average annual return of 26% across all investments. However, most angels are prepared for the reality that at least one-third of their investments will fail.

2. Familiarity with the entrepreneur

Angel investors usually prefer to know the entrepreneur before they would invest in the business. As a result, a lot of angel investing takes place among “friends and family.” But smart entrepreneurs network to find friends and family members who can introduce them to high-net-worth individuals.

3. Chance to nurture a new business

Angel investors love to nurture the business they invest in, in order to help it grow, and to make more profit from it in the process. Most angels are experienced businessmen themselves, and use their existing client networks to boost the revenue earning potential of the new business. They may lend their expertise at every step, from hiring capable staff to helping build networks of loyal clients. Angels become even more interested in funding a venture if they have handled a similar business in the past. This is why angels look for companies where they will be able to add value to the business.

4. A taste of action

Finally, there are some angel investors who simply love to be a part of the action. For them, it is exciting to invest in a new business; to watch it grow and prosper. They find it a lot more exciting than investing in the stock market, where the investor has a lot less direct contact with the business.

Now that you know what angel investors are looking for, go out and get funded!

Click here to learn how to raise capital from angel investors.

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