It’s important to consider the fact that most angel investors prefer to invest in industries that they have considerable knowledge and experience with. Also note that angel investors improve their value to the companies they invest with when they participate beyond just capital.
Angel investors who interacted with their invested companies at least a couple of times a month experienced greater results. Interaction could be in the form of mentoring, coaching, overseeing and monitoring performance and providing leads.
If you would like your angel investor to play a limited role, such as being employed by the company, or only want cash investment, then this article should provide food for thought.
What do Angel Investors bring to the table?
Remember that your potential angel investor will want to do everything that he or she can to help you succeed in your entrepreneurial efforts. Angel Investors are usually also associated with a network of successful colleagues who are also a tremendous resource. Don’t discount an angel’s willingness to share their considerable know-how. This applies to your industry, your market, the technology and even distribution channels.
Another consideration is to ensure whether it is actually legal for an angel investor to be a director of the company in reference to section 230 of the Employment Rights Act 1996 (ERA).
Angel investors often become investors by virtue of having success within particular industries. You want their cash investment and finding an angel with key industry knowledge and contacts can open doors and greatly accelerate your company’s growth.
Therefore as an entrepreneur your preference should be towards an angel investor (in addition to cash), accepting a seat on the board of your company, or providing specific industry knowledge and leads for your business or them taking an active mentoring role.
Sometimes these active angel investor roles can be far more valuable than the cash investment itself, and this is something that must always be considered in the ensuing negotiations for angel investment vs equity.
How much Angel Investment Capital do you actually need?
A good way to ensure you are getting good angel investment terms with your your investor is to seriously look at the amount of angel investment you are trying to raise. Do you really need that much? Trim down your requirements if you can. Calculating the amount of angel funding that you ACTUALLY need is one of the most important steps in this process – too little and you are under-capitalised – too much and you could look opportunistic. Explore how to balance out the amount of Angel Funding with the amount of equity that you are willing to give in exchange for it.
If you cannot trim down the amount of angel capital you are seeking, the next step is to look seriously at a realistic market value of your business idea before even considering entering into any kind of negotiation with a business angel investor.
How can your team prepare to attract Angel Investment?
And finally as most angel investors will prefer to invest in industries that they have considerable knowledge and experience in, you will find that your chances of raising angel investment will increase considerably if you highlight how experienced your management team is. Remember, an angel investor is also investing in the people who will lead your business forward, and if you have a team in place that can instil confidence, you may find that this is a significant asset in your negotiations.