Receiving investment from angels can be a daunting, time consuming process, one that is inherently inefficient. Experienced entrepreneurs take steps to minimize these funding inefficiencies.
These entrepreneurs understand the angel groups investment criteria and compare their start-up’s focus and requirements. They significantly reduce the time they invest in the process. Essentially, they understand these four easy steps to pre-qualify themselves and improve their startup funding efficiency.
Some angel groups invest across all industry sectors. Those groups may have members with experience across the spectrum. Or they may have aligned themselves with industry experts who can support them on projects where they lack knowledge or experience. However, such groups are the exception.
Most angel groups have interests and experience in specific industries. Therefore, they focus their investment efforts within their industry. Disciplined groups will not invest in areas outside of their defined focus. The entrepreneur should screen out those groups which don’t invest in their industry or sector.
Angels have differing reasons for investing in start-ups. All expect the appropriate risk-adjusted return on their investment. However many investors want to improve economic conditions in their regions, to support local entrepreneurs with their investment funds, or for the opportunity to support the local entrepreneurs by sharing their experience through mentoring as members of a director or advisory boards. Some prefer not to invest in opportunities that may be significantly inaccessible due to distance. Understanding where the angel group invests enables the entrepreneur to focus on a geographic match.
Angel groups have varying interests due to different experiences and risk tolerances. Some are very comfortable investing in concepts and seed level opportunities that need to be validated. Others prefer companies with fully vetted teams, a commercialized product, and significant sales revenue. Experienced entrepreneurs recognize that pitching a concept stage company to investors that invests strictly in early growth stage opportunities will not yield results.
Different angel groups have diverse investment appetites. A larger established group with an industry focus may invest a larger amount in a small number of opportunities within a single industry. While another group may prefer to invest smaller amounts in multiple opportunities across a broader industry base. Such preferences will preclude the group from investing outside their focus. Knowing this investment level preference can save entrepreneurs a lot of valuable time.
Only focus efforts on the angel groups with criteria that match your opportunity and its needs. The experienced angel avoids the shotgun approach; thereby improving the efficiency of their effort.