Let’s Pretend….You’re the Angel Investor

 

When you begin looking for startup funding from angel investors, the best approach you can take is to pretend that you are the investor. Investors want to put their money into new ideas and give entrepreneurs an opportunity to succeed, but they also want to minimize the chance that they will lose their money. It’s all about risk because savvy investors know that there is a higher risk of investment loss with a startup business as opposed to an ongoing concern.

To convince an investor that your new business is worth the risk, you need to pretend that you are the angel investor. What would you require in the way of information if it was your money that would be put at risk? By considering the situation from the perspective of the investor, it’s much easier to evaluate the real risks of the enterprise and to address those risks in the business plan.

 

Anticipating the types of questions that will be asked by an investor considering business funding can help you develop a business plan that answers expected investor questions thoroughly and clearly. This will prove that you have considered all aspects of the business and funding which provides a lot of reassurance to investors.  If you wouldn’t put your own money at risk, then why would you expect anyone else to do so.

 

The problem is that it’s difficult for new business owners to maintain their objectivity when promoting an innovative idea. It’s important to do so though because potential investors will look at your business plan details as if the business has been put under a microscope. By assuming the viewpoint of the angel investor, you are able to develop the business plan in a way that keeps it targeted on the ultimate goal of funding approval.

First Question: What About Other Investors?

Angel investors are going to evaluate personal risk that comes with funding by asking about other possible investors. A startup business is untested in the marketplace, so potential investors will find reassurance in knowing that other moneyed people are interested in the business concept or are willing to consider business loans.

Following are the types of questions an angel investor might ask:

  • What other types of business funding can be found for a new company? Is venture capital a possibility?
  • Are business loans a possibility? How about equity partners?
  • Has the entrepreneur been searching for funding for a long period of time and have others shown any interest in investing?
  • Could pooled angel investments lower the risk?
  • Does the requestor have any business experience and capable of developing a reasonable and honest business plan?


These questions are just a sample of the questions that will be asked while the funding request is being reviewed. Angel investors will comb through the business plan in great detail looking for an in-depth market and financial analysis, names of those who will be responsible for the success of the business, the plan of organization, long term financial needs and much more.

Second Question: Has Break Even Been Calculated?

An important question to ask yourself is: When will breakeven occur? You can bet that any investor whether equity partners, angel investors or venture capital will be looking closely for the breakeven point in the financial projections. It’s easy for entrepreneurs to get carried away with the excitement of their new business concept, but it’s the success after the initial startup that will lead to investor returns.

Lack of capital is one of the main reasons businesses fail. That is why the Small Business Administration emphasizes the importance of developing a business plan for ongoing success and not just for finding startup funding.


Third Question: Are You Ready for the Questions

By viewing your business plan through the eyes of an angel investor, it’s much more likely the plan will answer the funding questions. What kind of questions would you be asking if you were the investor? Answer those questions and angel investors will want to know more about your venture.

Created by Mark Favre, it offers expertise and assistance with developing and funding your concept, including a private forum for queries and discussions. If you need to access a vast network of business people, entrepreneurs, partners and service providers to help you start, finance and run your business, check out http://www.funded.com

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2 comments

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mindyjgirl 5 years ago from Cottage Grove, Oregon

Great Hub!I am going to check out the sites you have listed too :)


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