Spring Special: $0 Incorporation Service

Angel Investors – Why They Do It

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Providing angel financing to new companies requires a rare breed of investor. On condition of anonymity, one of these individuals with several years experience revealed his reasons. He has invested individually and with angel funds.

His first comment is that taking such risks is fun. That’s important information for new companies trying to appeal to an angel investor. The reason for the fun relates to the involvement of the investor. He enjoys meeting with intelligent and energetic entrepreneurs.

His expertise adds value to the enterprise—and thus to his own investment. He’s productive but avoids the stress of managing all the company’s affairs. Another tip for entrepreneurs here is to find angel investors among those most familiar with the company’s product and market. That yields greater benefits for their expertise and attracts their capital investment.

This leads to the primary rule of our subject angel investor: investing in what he understands. Since other investors—at least the successful ones—are likely to share that notion, entrepreneurs are wise to consider funding from sources that match their business model. Even if your company has the universal appeal of promising a cure for cancer, it is most likely to obtain an optimal financial arrangement with those most acquainted with the company purpose.

In fact, our angel investor conveys in a related statement that he puts greatest emphasis on the management team instead of the business model. He points out that inferior or just plain mediocre management can sink the best ideas. But a superior team can cause a modest product to achieve superior results.

Sound information here for entrepreneurs to remember when putting together their business plans. Companies should convey how setbacks are addressed by management and demonstrate their adaptability to the market.

Management strength also relates to the angel investor’s expertise. Gathering outside individuals—such as the angel investor—for a strong board of directors is important. Consequently, when adjustments are required to the business plan, company management and the angel investor conduct alterations jointly.