Business Magazine

If You Need Angel Investors, Avoid These Startups

Posted on the 14 April 2011 by Martin Zwilling @StartupPro

LightedBulbAmongDarkWe are talking about angel investors here, meaning people who invest their own money in early-stage startups for a share of the equity. These people are highly focused on investment areas they know, which have a large opportunity for growth, revenue projection of $20M or more in five years, and a high return that can be realized via an exit within five years.

Generally, the same criteria applies to venture capital investors, although they invest other people’s money, at a later stage, in larger amounts. Both are excited by innovative new products and services, and neither is normally interested in deals in the following domains:

  • Consulting services. This type of business is usually based on the expert skill and reputation of an individual or small group. Such a business shouldn’t need a large investment to get started (no product to develop), and it probably won’t scale quickly (limited supply of experts). Accordingly, investors will decline.
  • Restaurants and retail. Local and family businesses, such as cafes and retail shops, are also not investments that angels tend to consider, unless you are proposing a new national franchise. Otherwise these will not scale, and cannot show a growth and return rate to excite professional investors.
  • Gambling and porn sites. Most professional investors value their integrity and image so much that they would never consider investing in a business that might be offensive to many, or raise legality questions in the minds of business associates and future clients. This is definitely the space for bootstrapping and personal networking.
  • Real estate. Angel groups almost never supply financing for real estate purchases, or personal loans. Even in today’s market, there is capital available from financial institutions at a lower cost for these purposes. It doesn’t make financial sense to give up equity ownership on an asset purchase, with built-in collateral.
  • Non-profit businesses. I think investments in non-profits are called “contributions.” In fact, many angels investors are also philanthropists, but the process of finding them and working with them in this context is totally different from the angel investment process. It’s hard to promise a high financial return from a non-profit.

Be wary of brokers who claim they can find angels in these domains, for an up-front fee and a percentage of the investment. In general, you shouldn’t be paying a fee to have someone evaluate your investment opportunity, or “guarantee” to find you investors. I recommend going only with legitimate angel groups, accessible through national websites like www.angelsoft.net, or locally publicized organizations.

Even if you are in the right domain, you should remember that angels invest in people, even more than ideas or specific business ideas. They put high premium on entrepreneurs who are experienced in building a business, and experienced in the domain of their current proposal. First-time founders will find that most angels turn into mirages.

Entrepreneurs in an unfamiliar domain better find a partner who has been there before they apply for funding. Early-stage these days means early customer revenue received, and early product in the market. If you have no product, no customers, and no revenue, talk to friends and family for that initial funding.


You Might Also Like :

Back to Featured Articles on Logo Paperblog

These articles might interest you :

  • How Different Kinds of Bread Affect Blood Sugar Levels, Compared to Teaspoons...

    Different Kinds Bread Affect Blood Sugar Levels, Compared Teaspoons

    Think whole-grain bread is a good choice? Could it help you control your blood sugar? Not necessarily. If you look at the graph above (made by the eminent Dr.... Read more

    8 hours, 13 minutes ago by   Dietdoctor
    DIET & WEIGHT, HEALTH, HEALTHY LIVING, MEDICINE
  • Monday Musings.

    Monday Musings.

    Ugh, someone give me an IV of coffee, would ya?! This weekend was super busy but thankfully, it was well spent with my people. Since we’re moving (did you... Read more

    9 hours, 20 minutes ago by   Thesamanthashow
    LIFESTYLE, SELF EXPRESSION
  • Summer Summertime Essentials

    Summer Summertime Essentials

    Summer is here, and boy did it slam us here in DC. Less than a week ago I was shivering in a coat and today it's 85 degrees. While I transitioned my wardrobe... Read more

    9 hours, 33 minutes ago by   Wardrobeoxygen
    FASHION, SELF EXPRESSION, SHOPPING
  • Auronya College Aims To Answer The Unknown Future With Education 4.0

    Auronya College Aims Answer Unknown Future With Education

    ,Auronya College aims to break the barriers to imbibe revolutionary means of providing global standard education to the youth. It is an amalgamation of modern... Read more

    10 hours, 23 minutes ago by   Jaideep Khanduja
    DIARIES, SELF EXPRESSION
  • Oriflame The ONE Lip Sensation Vinyl Gel Lipstick Review, Swatches & Price India

    Oriflame Sensation Vinyl Lipstick Review, Swatches Price India

    Oriflame has recently launched some luscious and beautiful lipstick gels under ‘The ONE’ range. Yes, it’s a perfect combo of lips gloss+lipstick! Read more

    10 hours, 32 minutes ago by   Jayshreebhagat
    HAIR & BEAUTY
  • Brand24 – The Social Listening Tool You Need Today

    Brand24 Social Listening Tool Need Today

    Brand24 -A Social Listening Tool Brand24 is a social listening tool I learned about over on the Quora network. Not only does Brand24 monitor your social mention... Read more

    10 hours, 34 minutes ago by   Lisa
    SELF EXPRESSION, SOCIAL MEDIA, TECH
  • Easy Protein Noodle Lasagna

    Easy Protein Noodle Lasagna

    Meal plansGet lots of weekly low-carb meal plans, complete with shopping lists and everything, with our premium meal planner tool (free trial).... Read more

    11 hours, 7 minutes ago by   Dietdoctor
    DIET & WEIGHT, HEALTH, HEALTHY LIVING, MEDICINE

Magazines