Most experienced Angel Investors will expect no less than 31-40% annual returns on their early stage and start up angel investments.
This is the ideal range someone seeking to raise investment should aim for in their business plan and financial projections that are sent to an Angel Investor.
Anything less than a 31-40% annual ROI might not be of interest to an Angel Investor. Anything more than a 31-40% ROI may not be realistic and send the wrong message from the start!
As an entrepreneur considering raising angel investment you must obviously factor in the amount you are looking to raise, the types of shares you will be offering and a target return based on these factors.
The Angel Investor will have a definite return on investment (ROI) in mind for the types of investments that you represent but will also be influenced by the figures projected in the Investment Summary of your investment proposal.
Consider how much equity is enough in return for an Angel Investor’s investment. You may be surprised to find out that there are many businesses and entrepreneurs that have, and are considering giving away equity for NO angel investment.
No investment equity
A start-up may be motivated to give away equity in return for no investment. Angel Investor may instead of investment take on a share of the liability of the company, or be forced to invest in the future life cycle of the business, or invest when a second round of funding is needed.
Potential conflict occurs when the entrepreneur makes a common mistake that can skew the perception of the % in question, comparing the ROI offered to typical bank loan rates. Remember that it is a free market out there and it is the entrepreneur who needs the funding for his business. The presentation of the business plan can heavily influence the perception of the risk/reward of investing. A further consideration is to calculate how much cash have you invested in your business, as this will impact the angel investment/equity ratio.
Angel Investors do know the risks involved and while they can be very patient waiting for their return, they expect to be well compensated for their risk.
Any early stage or start up business is considered very high risk, no matter what the business is. As a result, Angel Investors want a higher return in exchange for this risk and ideally 30-40% ROI. Some will accept less and some will want more, but this should be your realistic target and objective.