What are angel investors? They could be professionals including doctors, engineers, lawyers or seasoned entrepreneurs, who have passion in supporting the future generation. A very important attribute of angel investors is that they are always filthy rich and willing to pump dollars into your business, expecting some returns. This essay synthesizes angel investors in terms of how they work, what they are always looking for and what you need to know when dealing with this kind of investors.
An angel investor does not operate out of the laws that govern the U.S. financial markets. Specifically, they have to conform to the regulations of the Securities Exchange Commission (SEC) and meet its definition of certified investors. In addition, one qualifies to be an angel investor if they have a net worth of at least a million dollars and have an annual income of at least $200,000 or $300,000 in cases where the investors are joint spouses. An angel investor gives money to a firm, which sells equities in return, which you have to register with SEC. In most cases, this type of investors runs approximately $600,000. Because of the rise in the number of angel groups, most investment rounds make use of more investors.
After understanding whom angel investors are, it is equally paramount to master what they look for when are investing in your company. It is up to you to do a thorough homework and determine the nature of investments they prefer, the kind of business they invest in among other needs. This is vital because angel investors are distinct from venture capitalists. While there are likely to be differences in specifics towards a given investor, most angel investors look for the following:
Firstly, you have to be prepared. It is common to find a company looking for angel investors and busy doing their homework when they do not have a great pitch to win an investor. In the event investors admire your pitch, they will be interested in perusing your market research, due diligence package and pro-former among other details. If you have everything in place, you are likely to win investors with ease than going away for sometime after the pitch to prepare for necessary materials. It is also important to understand the agreement you sign with an angel investor. Of great significance is the fact that having an angel investor on board does not mean you have sold your product to the investor. Essentially, it should be clear that you only an investment in your firm to investors. On this basis, the product should be less than half the pitch.
Regardless of how the deal is sweet, one should also clearly state the exit strategy for the deal. In most cases, about 80% of pitches do not include the exit strategy. This leaves the investor which no clue of how you intend to get back the money. It is important to let them understand when and how you intend to exit the agreement and with whom. It is also important to practice in order to present a perfect deal to an angel investor and win him or her to invest in your company.
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