What do angel investors look for?
By now you may be wondering what it takes to get one of these angels to be interested in you and your company.
The quality of you and your team
Well, since records began, it has been proven that the number one factor when angels were deciding whether to invest in a company has always been first and foremost, the quality of the entrepreneurial team and their skills and experience.
According to The 2020 UK Business Angel Market Report by the UKBAA, between 95% to 100% of Jenny Tooth OBE’s respondents said this was important, with most saying it was very important.
Tooth OBE has some guidance for us here:
“An investor looks for a great entrepreneur: the business comes after that.
For instance, [say I met you and] you’re a great entrepreneur but I’m not interested in investing in your sector, then I would be happy to introduce you to my colleague or another investor who might have an interest in this sector.
We look for bright, passionate, experienced business owners with a track record of achievements.”
Besides a great entrepreneur and team, investors will also consider things such as market opportunity (a situation in which a product or service, etc. has been proven to be wanted and needed by consumers), and scalability (a business’ potential to expand and grow, but most importantly have the infrastructure to deal with fast or unexpected increased demand) to guide their decision on whether or not to invest.
For a full list of questions angel investors may ask, and so you can have all your bases covered, here are the questions a savvy angel investor is likely to ask before handing over cash.
Potential impact on your business
Every grouping also placed importance on the potential impact the business could have, as well as the impact their investment would have globally. This was particularly prevalent in the (admittedly small, but very important) demographic of 21 angel investors between the ages of 18-34.
There was also a difference between genders on the importance of impact:
79% of female angels felt that ‘impact’ was important, while only 52% of males did.
Gender perception in angel investing
The perceived importance of gender within a business’s company structure brings up some striking differences in responses:
55% of females stated gender was important, compared to only 14% of males.
This is a significant unconscious bias that has been contributing to the investment gender gap, as it has been proven that 1) historically, angel investments are mostly male-founded teams, and 2) there is a correlation between the gender of angels and the gender profile of the founders they invest in.
Ergo, male-dominated teams will continue to work with other male-dominated teams, and male angel investors will have a subconscious bias towards male-owned companies by default unless these unconscious biases are challenged.
In Europe, it was identified that female investors also invest between 20-50% of their portfolio invested in similarly female-led teams, but whether this is also an unconscious bias or more of a conscious attempt to give women more of a chance from an ethical and empathetic standpoint. However, currently, this effort still is not enough to balance the disparities that have been in place for millennia overnight. The current investment scene is markedly male and will stay that way until there is a very intentional push for change.
A note from Tooth OBE:
“A group of angels can see thousands of business plans in a year but only invest in, say, 20 of them. So we talk about 2%. You need to get down to that group. It’s about making sure that your business will tick all the right boxes.”
A few other factors for what angel investors look for in a potential investment are:
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