Matching Your Company With the Right Angel Investor

Posted On:

Just as angel investors carefully investigate companies for potential investment, entrepreneurs should examine the angels. There are several factors a company must consider in order to assure a lasting relationship with a financing source.

The first issue is determining the typical size investment opportunity preferred by the angel investor. A mismatch in this deal size is certain to result in frustrations later. For example, a company must tread carefully when accepting $50,000 to launch an enterprise that requires $500,000 to achieve all objectives of its start-up phase. This situation requires an expectation of further rounds of funding from the investor when the company achieves defined targets. Inadequate capital is a primary cause of business failure.

In addition, there are numerous angel investors seeking moderate-scale low-tech companies. Therefore, entrepreneurs seeking to open several sandwich shops with $50,000 should not waste time with investors who want only to finance high-tech companies requiring a minimum investment of $250,000.

Assessing the wealth of an angel investor is not the sole indicator of compatibility with a particular company. Other criteria are important, such as number of deals funded in the past and the level of involvement the investor prefers beyond providing money.

Many new companies don’t need much capital to accelerate toward profitability and create sustained growth. These enterprises are typically funded by angel investment that goes unnoticed. There is no central repository of information about these deals. But there are plenty of these arrangements. They are simply quiet because of their private nature.

Ventures that require significant amounts of capital to experience growth have a different path. These companies first require seed money from angel investors, who understand that the companies need future funding rounds from institutional sources. These are attractive opportunities for angel investors experienced with early-stage financing permitting companies to position themselves for attracting venture capital later. These long-term propositions are often funded by angel groups.

Every angel source has different criteria, which a company should examine in advance. Some groups will provide funding for $10,000 while others have minimums of $1,000,000. This causes a skewed assessment of the average deal size funded reported by members of an angel investor network. A company seeking $500,000 should locate a specific angel group that prefers deals of that size. This is better than approaching all the angel groups in a network reporting an average deal size of $500,000.