Article Contributed by Greg Dastrup
There are an estimated 300,000 angel investors currently active in the US, and a whopping 39.2% percent of the companies they invest in are considered “seed” or startup businesses, so the opportunities are definitely there for the truly dedicated business newbie — but don’t let these figures lull you into a false sense of security.
Convincing an angel investor that your new business is a good project for funding is difficult. Angel investors must be lured by an excellent sales pitch before they’ll invest in your startup company. Below are a few tips that novice entrepreneurs should take heed of in order to make a positive impression on an angel investor during negotiations.
Be Prepared
Company owners must not scout for angel investors until their product or service is genuinely ready to be immediately launched to the public. Readiness is crucial when approaching angel investors, and company owners should start out strong to persuade angel investors to invest in their business. Furthermore, entrepreneurs must have a sharp, unambiguous vision of their business strategy already laid out in their minds and preferably in text.
Keep No Secrets
As soon as you’ve discovered prospective investors, it is essential that you correctly touch on all aspects of your business and demonstrate that you are capable of “thinking outside of the box” in your first appointment with them. Besides talking about other investors and advisors, you should also discuss your administrative team to ensure that they are informed about everyone with an interest in your company’s achievements.
Pass on to angel investors your ideas regarding your possible customer base, as well as the industry size and timing. Talk about outside factors that might impact the all-around success of your enterprise. Point out rivals, laws, accessible technology, client wants, etc.
Know What They Expect
When it comes to negotiating figures, remember that you must first offer the money deal and its framework to them, rather than expecting them to pitch a figure to you. Angels usually tend to concentrate on the figures, particularly with respect to their share of initial ownership. They usually feel that will have the most significant effect on the potential worth of their investment, so a lot of them will stand strong in bargaining over what they believe their rights ought to be. They also tend to be very deliberate and take things at their own pace during negotiations, often with the desire that you will inevitably agree to their terms.
Until both sides are conscious of how the partnership will perform from the outset, there is a possibility of recurring problems. Entrepreneurs who lack negotiations training must work extra hard to understand all the requirements of angel investors and hold them in esteem.
Know Your Market
Angel investors typically prefer to invest in markets they have experience in. They are also always checking the market’s demands for new goods or services. The market of the new company’s products and creations ought to already exhibit large potential for expansion before an angel investor will think about supplying the needed capital. For an idea of the industries they are typically most interested in, consider that 30% of funds contributed by angel investors are to businesses in the health/medical industry, followed by 16% in software and 15% in biotechnology products and services.
Consider Your Location
Most angels are inclined to fund local businesses for a number of reasons. To start with, the ease of accessibility will enable them to regularly check out the businesses they have invested in, in order for them to routinely meet with the administrative team and to be present to watch their investment advance. In addition, being nearer to their investment allows them to source offers by means of referrals whom they know and have faith in. To be able to achieve this, they depend considerably on other nearby investors, accountants, lawyers and business affiliates.
Know Your Numbers
Angels are attracted to modest start-up businesses with the intention of expanding them into bigger enterprises with a high return of investment. These kinds of start-ups could demand a lot of funding to launch successfully, with further investments needed in the course of the company’s advancement. For that reason, angels usually prefer to invest amounts greater than $20,000 and possibly as much $500,000 or more.
When all is said and done, your angel investors’ participation in your company may be rather complex. From the moment angels make an investment, their function in your business can range from being a silent shareholder to a board associate. The good point concerning this monetary commitment is that all conditions are negotiable, and the ideal time to get involved in negotiations is prior to the paperwork being signed.
Author Bio: Greg Dastrup is a small business analyst and lead generation expert. He consults for brands in both the US and Australia and is currently a speaker at international business conferences.
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