There are eight key things angel investors will look for when considering whether or not to fund your business. No, you don't have to satisfy all of these criteria. But the more of them you do, the better the chance they will say "yes" to your funding request.
#1: They Like You
Believe it or not, this is really important. No matter how good your venture is, if the investor doesn't like you, they generally won't fund you. So, build rapport with prospective investors and give them the respect they deserve.
#2: They Feel Good About the Venture's Genre
Even if the investors likes you and even if they think your company can be a huge success, they need to like what the venture is all about. For example, someone who hates politics will generally not fund the new political website you are launching. So, find investors who have an affinity for the type of venture you're launching/running.
#3 They Feel a Void
If an individual is an ultra-successful business person who is currently running multiple operations, they are generally not going to invest in more ventures. Since, they don't have a void; they have all the excitement in their daily life that they need. Conversely, a person who feels they might be "missing out on the action" will be more motivated to invest in you.
#4 They Feel There's Good ROI Potential
This is obviously important. Even if investors like you, the type of business, and they feel a void, they generally want to believe they will get a nice return on their investment if they fund you.
There are five sub-criteria to this, which get us to our sum of eight things angel investors want.
Does your company have a strong potential to achieve significant annual revenues? In a truly scalable business, you can multiply your sales without having to greatly increase your resources. Scalable businesses grow more rapidly and can reach an exit (whereby the investor gets their return) faster.
#4b: High Barriers to Entry
Barriers to entry are those things that make it difficult for another firm to compete against you, such as patents or proprietary technology, a unique location, strategic partnerships, and long-term customer contracts.
The stronger and/or more barriers to entry you have, the more likely you are to succeed, and the higher expected ROI the investor has.
#4c: Worthy Management Team
Angels must believe in both the founders and the key operating personnel of your company. Because even the best idea will fail if the team isn't good enough.
#4d: Your Exit Strategy
Your "exit strategy" or method in which you will "exit" your business, is generally to sell it or go public, with the former being much more common. As such, it's good to think about your exit strategy early. Who might want to buy you in the future, and why?
Since angel investors can't realize their investment until you exit, be sure to prove to them that such an exit is viable.
#4e: The Right Price
Finally, angel investors will only invest when the price is right. If you price your equity too high, angels may not have the potential to reap significant enough returns and will not invest.
We see this on the show Shark Tank all the time. The entrepreneur says, for example, that for $400,000 they will give up 10% of their company. The sharks always laugh at percentages like this and say they will need at least 40% of the company or more for that dollar amount.
While the sharks are much more sophisticated, and shark-like, than your common angel investor, you need to price your equity fairly (give them a fair equity stake for their investment) if you want them to fund your venture.
Knowing these 8 things that angel investors want will help you identify and convince the right angels to fund your business!
For my complete game plan for raising funding from angel investors, check out our Angel Funding Formula.