Angel Investors - 4 Things to Know About Them

If you’re an entrepreneur or looking to become one, you have hopefully already heard of the class of investors known as “angel investors.” In brief, angel investors are individuals or groups of individuals who have a high net worth and an interest in supporting startups. Their motivations for investing vary from simply wanting a return on their money to more altruistic motivations.
If you’re an entrepreneur looking for an angel investor, here are four key things you need to know about angel investors and groups.

1. It’s Still Who You Know

Although the Internet has given rise to websites that aim to connect angel investors with entrepreneurs, the primary way entrepreneurs meet investors is still old-fashioned networking. The best way for an angel investor to be introduced to an entrepreneur is through a mutual friend.

2. Have Your Plan in Place Before You Meet

As an entrepreneur, you need to be prepared for the initial meeting with the investor(s) before it ever happens. You should already have a very solid business plan in place, which generally means that it is 20 to 50 pages in length plus appendices. When you finally get the introduction to the angel, you should be able to summarize your startup with a 2-minute “elevator pitch.”

3. Be Prepared to Make a Lot of Pitches

Angel groups have a lengthy, cautious process for deciding which startups they will eventually invest in. The process starts with pre-screening; of the 30 or so plans the group receives in a month, only 5 to 10 go to the screening committee. This committee decides which plans are worthy of giving a presentation to the larger group. About a third of these presentations lead to a more serious investment meeting, and out of those meetings, half receive funding. In all, 1 to 4 percent of startup companies who send a proposal to an angel group gain their funding.

4. Geography Matters

One reason that meeting angels via the Internet is often less successful than meeting them in person is geography. According to the 2008 ACA Angel Group Confidence Survey, almost one-third of angel groups prefer to invest in startups that are within a 2-hour drive of their home. Other groups keep their investment activity within their own state or region.
Understanding this, you might like to know that startups in California receive the most in angel investment dollars each year. The Southeast region is emerging as a close second.
These four tips should help get you started in understanding who the angel investor is and how he or she decides to invest. For more details, see the Angel Resource Institute’s recent Halo Reports on angel investing.

Author Bio:

David Gass is an Angel Investor and Online Blogger.  He has contributed to Fast Company, Yahoo Finance, Entrepreneur.com and many other financial planning sites.  His current business focus is on buying websites in the financial niche.