Attracting Angel Investors: What do Angel Investors Want?

The universe of Angel Investors is diverse; with each different type of Angel having their own specific motivations. It is therefore important for the capital raiser to understand the classification of Angel Investors; so that time is not wasted pitching a deal to the wrong one. Within each category of Angel Investor, there may also be different styles and approaches to investing; based on the individuals involved. For practical purposes of expediting the fund raising however, the capital raiser must first understand the basic categories of Angel before getting into the specifics of the individual Angel.

Value Added Investors have the following characteristics:

• Extensive experience of investing
• A professional process and operation in place that runs as a business; generating profits on successful exits of investments
• Requirement for a due diligence process and submission of detailed business plans
• A portfolio approach to investing in multiple businesses
• Provide support to help grow the business
• Willing to take the risk of being a lead investor
• Access to a coinvestor network
• Hands on approach to involvement in the business at critical stages in its life and/or during crises
• Focus on specific industrial sectors and areas of competence

High Net Worth Investors have the following characteristics:

• Have built and sold their own companies, often more than once
• Have strong industrial and management background; rather than financial experience
• They are deal makers and negotiate their positions to minimize their risks
• Tend to invest in what they, know to minimize risks
• They like to control ownership of the company
• They like to control the management of the company
• Are interested in both the business and the people involved
• Are flexible in their approach to deal sourcing and execution
• Try to look for large returns rather than smaller predictable returns
• Derive return from the fun of the deal and seeing a business grow

Consortium Investors have the following characteristics:

• They are linked together by a legal document that defines the activities of the group
• Typically operate in small groups of no more than six, so that deals to can be efficiently executed
• Collectively, the group will have experience in management, finance and operations
• Tend to be less active in the business; and require it to be operated by a professional management team
• Require advisory board oversight status
• Not all members of the Consortium may invest together
• Not all members of the Consortium may invest equally
• Connected to coinvestment networks of other Consortiums and High Net Worth Investors
• Require a higher protected position within the ownership of the business; and a preferred return of investment and profits on liquidation

Partner Investors have the following characteristics:

• An implied intention and capability to buyout the capital raiser; either in the beginning or at some later stage
• A strong requirement to have management control and majority ownership of the business
• Access to a coinvestor network, that tends to be a passive investor in deals that the Partner controls
• Often lacking in the financial resources to own and operate an established going concern; and is therefore interested to achieve this status via Angel Investing
• Very comfortable as a lead investor, as long as control is maintained

Family Investors have the following characteristics:

• A pooled source of funds, associated with family membership and controlled by legal contract
• Collectively and individually highly educated and often experienced in business and finance
• Willing and capable of contributing time and experience to the business
• A tendency to seek consensus on consummation of the investment and key decisions during the investment

Barter Investors have the following characteristics:

• Provide a specific non-financial source of capital and/or services, in return for an equity stake in the venture
• As a result of the provision of capital and/or services, require an active management role in the business
• Seek early stage investments, in which a larger share of the business can be acquired by bartering
• Provide useful incubation stage support to grow the business; using the bartered inputs
• Have a high focus on the quality of management of the venture, to make sure that the bartered investments are used efficiently and profitably
• Have strong internal due diligence capabilities; and drive decision making internally rather than through external experts
• Less reliant upon a coinvestor network; in favour of the internal capital and service provision as inputs
• Tend to seek investments that can grow revenues swiftly; to compensate for the fact that capital/services rather than cash are being invested

Socially Responsible Investors have the following characteristics:

• A requirement for a strong interaction with the capital raiser
• A requirement to personally interact with the business and capital raiser
• An affinity with the business and capital raiser; from a non transactional perspective
• A moral and ethical requirement to associate with businesses and individuals who are perceived to espouse the same value judgements
• An affinity for ventures that are focused on social and medical issues
• Willingness and ability to compromise financial return; in order to maximise ethical return on principles
• May often come from a charitable and/or inherited wealth background
• Rely strongly on external advisers

Unaccredited Investors have the following characteristics:

• Limited financial resources
• Lack of investment experience
• Lack of industrial experience
• Often are seeking a role in start-ups; that they can earn substantial return from via equity participation
• Have a short-term investment horizon
• High maintenance; in terms of time that must be devoted to them
• Have a portfolio of multiple small bets on various diverse business opportunities
• Often are members of a coinvestor network; and make decisions based on the consensus and recommendations of this network

Manager Investors have the following characteristics:

• A career track record of success as an executive
• Focused on using experience and financial resources to make one last successful investment in their lifetime
• Less experience as a significant equity investor
• Heavily reliant upon external professional opinion; rather than their own experience
• Great attention to detail
• Highly risk averse; to mitigate the concentration of risk in the single investment
• Have a strong requirement for significant involvement in the decision making process of the venture
• Require an affinity with the venture and its founder
• Have access to an industrial expertise network; to compensate for lack of access to a coinvestor network

The capital raiser must understand the different types of Angel Investor in relation to the venture. Once this has been done, investors can be approached with a greater degree of certainty that time will not be wasted and that an investment will be consummated.