Regardless of all the attention and
recognition venture capitalist gets, its far from the most common source of
startup funding. Angel Investors - affluent investors
who invest small amounts of capital, make their
investment decisions quickly, and rarely require a board seat as a condition of
investment. This makes them an attractive funding option for startups that
don't need large investments and want to retain more control over their
business.at an earlier stage than VCs do — fund more than 16
times as many companies as VCs do, “and their share is growing.”
Yet for how
substantial the market is, there's relatively little data on the decision
making process of those who invest in early stage startups. As a result, we're
stuck with the question of how investors choose which startups to fund. It's
hard to predict whether a novel idea will succeed, and these fledgling firms
typically have no financial track record or tangible assets.
MANAGEMENT TEAM
“Whenever an angel
investor receives a business plan, he would always read the resume section
first”. Not because the people part of the new venture is the most important,
but because without the right team, none of the other parts really matters.” Three-quarters
of survey respondents said the management team of a startup was their biggest
consideration for investing. “This suggests that
a startup’s human capital is uniquely important to potential investors.”
ABILITY TO UNDERSTAND
TECHNOLOGY
Many choose not to
invest in specific businesses due to their inability to grasp their technology
efficiently. "The easier we make it for angel investors to discover,
evaluate and participate in science and technology startups, the more we'll see
money going into these worthy companies and the benefits to humanity
accrue,"
POTENTIAL RETURN ON
INVESTMENT (ROI)
49% percent ranked
potential ROI as their top motivator for making an investment decision. While
some investors are indeed looking for financial compensation, not all are
primarily interested in just the money. Some want a different kind of return:
The ability to solve the world's biggest challenges through the businesses they
fund. Nearly one-third of angels will choose to invest in a company based on
its connection to important social issues.
Perhaps the best
angel investment you could make is choosing the right company to work for. The
value of the options associated with a successful company will swamp the return
on any angel investment you are likely to make, even if you do happen to have a
success.
