Angel investors have become an essential source of capital for startups. They are critical in helping a startup grow into a business and succeed. While there are many factors to consider when selecting an angel investor, choosing the right angels has benefits beyond the investment itself. Hell, even if you don’t get an investment offer from an angel, they will often help your business by setting you up with additional contacts and introductions that benefit your company on multiple fronts. In this article, we will discuss tips for choosing the best angel investors.
Make Sure They Are Truly Accredited
If you’re looking for an best angel investors, it’s essential to ensure they’re accredited. The definition of accredited investors is relatively straightforward: they must have a net worth of at least $1 million.
If you’re looking for a seed round, this shouldn’t be so much of an issue because most angels will have more than $1 million in their accounts. But if you’re looking to raise a Series A or B round, you’ll need to ensure your potential angels meet this criterion and are willing to invest in growing startups.
Talk to Current and Past Portfolio Companies
Best Angel investors often use the same metrics as VCs when evaluating startup companies. If you want to get funded by an angel investor, you should talk to current portfolio companies before approaching them as potential investment targets. You can also check out their portfolios online and see what other companies they’ve funded in the past — if any relevant ones align with your product or market focus, it’s worth contacting them directly with a pitch email (don’t forget to include your contact info)
Check Their “Follow-On” Rate
Angel investors can be an essential source of capital for stage-agnostic entrepreneurs. They invest in early-stage companies to get a return on their investment within a relatively short period, usually six to nine months.
If you have an idea worth investing in but don’t have the cash to start production and sales, you may want to consider angel investors as potential partners. However, it’s essential to understand precisely what your angel investor expects from you before signing on the dotted line.
Angel investors typically expect a return on their investment within six months (or less). If your product needs more than six months to develop before it can be sold, you will have to go back to your angel investor and ask them for more money.
Find Out if They Have Any Conflicts of Interest
When it comes to angel investors, there are typically two types of conflicts of interest: those that affect the company and those that affect themselves personally. For example, one potential conflict might be if an investor invests in your company but has investments with other companies competing with yours or even people who work at your competitors. Another battle could be if an investor has direct knowledge about your company but cannot disclose that information because there are laws protecting their confidentiality (such as patent law). In both cases, it’s essential to ask yourself whether these conflicts would prevent you from doing business with them or if they will only affect your decision on whether or not to work with them.
Understand What Their Terms Are
Angel investors usually want to be involved in the company’s day-to-day operations. But they may also want to help shape the company’s strategy and make sure it’s a good fit for them. As such, you’ll need to think carefully about how much time and effort you can afford to devote to these duties.
Angel investors are typically looking for a return on their investment, so keeping them happy is essential. You’ll also want to ensure that you’re prepared for any potential legal issues arising from your business relationship with an angel investor.
Finding an angel investor is still the most common way for startups to secure startup capital. There are hundreds of websites that act as matchmakers between investors and companies, but in the end, you must do your due diligence to find the best fit for both. It isn’t easy, but if you choose wisely, it can be a massive boost for your business—one that will likely lead to profitable returns for years to come.