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July 11, 2012

What Angel Investors Are Looking For In A Startup

If you’re looking for angel investors to pump capital into a new business, perhaps the best way to start is to think like an investor. If you were looking for a startup to invest in, what would you look for in an investment? At least for most investors, the two most important qualities are the management team and the strength of the market. A prospective investor will be looking for a market which is large enough to make the business viable in terms of revenue – and realistic projections of revenue could be anything from a few hundred thousand per year to several million in the next 5 years, depending on the company and the industry. This differs from the kind of revenue that venture capitalists generally look for; often $50 million and up within the next 5 years.

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The other thing that angel investors will be looking for is a strong management team. Ideally, you should be experienced in your field and have a track record of success in previous ventures. If the rest of your management team has a similar history, this will help inspire confidence in potential investors.

Investors always like to see that a company has a strategy for creating barriers to entry. A company which has a viable plan for keeping competitors locked out is a far more attractive prospect to an angel investor for obvious reasons: low competition means higher profits.

Location is something else that investors will usually take into account. By and large, people prefer to invest in companies which are located relatively close to them, since this facilitates communication and interaction between the investor and the startup. In fact, around 70% of angel investors invest in businesses within 50 miles of their homes.

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Last but certainly not least, an angel investor will want to know when they can expect what is called a liquidity event, meaning an IPO or an acquisition by a larger company. These are what provide the company with the liquid assets necessary to give investors a return on their investment in the startup. An angel investor is, first and foremost, interested in the potential for liquidity of the small companies that they invest in.

Peter

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