What do angel investors want from a startup? (2024)

FAQs

What do angel investors want from a startup? ›

Investors will look at the leadership team in place. Because the business is new, it's vital that the founders have the skills, experience, and temperament to execute a successful business plan. On a personal level, angel investors want to back entrepreneurs they deem trustworthy and passionate about their ideas.

Most angel investors are relatively wealthy individuals who are looking for a higher rate of return than can be found in more traditional investment opportunities. They search for startups with intriguing ideas and invest their own money to help develop them further.

Scorecard Valuation Method: Also known as the Billy Payne valuation method, angel investors compare the startup in question with other funded startups. By modifying factors like location, market, stage, and industry, investors evaluate the company better.

As an investment rather than a loan, angel investors provide funding in exchange for equity in the business - usually around 10%. If the company grows as expected, the investor can sell their stake at a profit.

Angel investors are wealthy private investors focused on financing small business ventures in exchange for equity. Unlike a venture capital firm that uses an investment fund, angels use their own net worth.

In general, angel investors invest in early-stage companies, while venture capitalists invest in later-stage companies.

Offer a product demonstration. Prepare a video of customer testimonials from beta testing. Research the competition. Research potential risks so you're prepared for the tough questions.

In exchange for investing a certain amount of funding, angel investors receive a minority ownership stake in the company. This proportion is typically no larger than 20 to 30 percent across all investors, since the founders need to retain majority ownership and also reserve some shares for employee stock options.

Angels want to see if founders have real experience in building businesses. The ideal founding team may have a track record of scaling companies, deep industry expertise, and networks to leverage. Serial entrepreneurs who have started multiple businesses may be attractive.

What is a typical ROI for an angel investor? ›

However, successful investments in early-stage companies can provide substantial returns. On average, angel investors and venture capitalists aim for ROI in the range of 20% to 30% or higher. But remember, these figures can vary greatly depending on the specific investment, industry, and market conditions.

As a rule of thumb, you can assume that early-stage startups may offer higher equity stakes to attract angel investors, while more mature ones might offer lower percentages due to proven concepts and traction. Angel investors typically aim for a stake, ranging from 15% to 20% of the company.

Angel investors can be accredited investors with net worth of at least $1 million or at least $200K in annual income. Steve Nicastro is a former NerdWallet writer and authority on personal loans and small business.

What percentage do angel investors take? The percentage of ownership that angel investors typically take in a company can vary, but typically it is between 10-20%.

Loss of control and ownership: the most obvious disadvantage of raising financing through angel investment, is the loss of ownership and control of the company as founders may find themselves giving away between 10% and 50% of the shares in their company.

An angel investor is an individual who invests in startups usually in exchange for an agreed-upon percentage of ownership in the company. So, while by definition these Shark Tank hosts are, in fact, angel investors, they look and act differently than the angel investors who invest beyond the tank.

High growth expectations

Venture capitalists expect to receive a high return on their investment. For this reason, VCs tend to favour businesses with opportunities to scale rapidly.

Investors do not want a company that will be stagnant. They want to invest in startups that will thrive and eventually provide a return on their investment. Your business should be built with scalability in mind. Building a company that does not scale is one of the most common mistakes startups can make.

Stage of entrepreneur - In general, angels invest in seed, start-up and early-stage businesses, while venture capitalists invest in later-stage businesses (although there are exceptions).

Motivations Behind Angel Investing

The primary motivations for becoming an angel investor included the potential for high returns (61%), portfolio diversification (40%), access to innovation (39%), hands on involvement in early-stage companies (34%) and the opportunity to assist others (33%).