In order to consider investing, angel investors must believe that the company has great potential to achieve a liquidity event, and one that enables them to earn a significant return on their investment. The following factors imply that a company has this potential.

The first criterion is scale or the potential for the company to achieve significant annual revenues. If a company expects to raise venture capital after the angel round, it must have the potential to earn annual revenues of $50 million to $100 million within five years.

Conversely, an angel investor, when no follow-on capital is required, might be willing to invest in a restaurant or website that has the potential to generate hundreds of thousands or a few million dollars as long as a clear path has been laid out regarding how they could get a sizable return on their investment.

The second criteria is barriers to entry. Barriers to entry are those things that make it difficult for another firm to compete against you, such as patents or proprietary technology, a unique location, and long-term customer contracts.

The third criteria is having a strong management team with relevant experience and successes under their belts. The angels must believe in and be comfortable with both the founders and the key operating personnel of the company.

The fourth criteria is that angel investors need to feel confident of your exit strategy, mainly that the chances are good of eventually having another firm purchase you or your firm going public. It is through your exit strategy that these investors profit from their investment in you.

A final criteria, while not necessarily tied to liquidity potential, is that angel investors tend to only invest in local companies. Angel investors often like to invest in companies that are close by so that they can visit them often and participate in Board and other meetings. In fact, according to the Center for Venture Research, 70% of angel investments are made within 50 miles of the investor’s home or office.

Written by Dave Lavinsky Article Source

I was at an investor conference, the Progressive Investor Network, where Morgan Stanley’s Wealth Management group was the sponsor. Their representative made a comment in his opening remarks…. “We have clients that come to me asking for a greater yield than the 4% they get in the bond market or the unpredictable, lack luster performance of the stock market these days. They see Angel Investing as a way to potentially create a greater yield for a portion of their portfolio.”

If that is the case, then why do not more high net worth people jump in and do angel investing?

It could be answered by the philosophy of the guy that we met later that day at the Buckhead Club. This gentlemen was the founder and operating partner of a financial wealth management firm operating for decades in Atlanta managing trusts and large estates. He called himself a “technician”. The attraction of a greater “yield” was of little interest to him. The idea of making 10 or 20 X your money was not as appealing as having a steady predictable return. He did concede that if he was to start a company because he had a great idea, he would put his own money in then go to his buddy Fred, and Fred might go to his buddy John, and they all invest to get the thing done and make money. But Hey….is not that angel investing? And would not Fred and John invest because they thought they would get a GREATER YIELD?

So the answer to the Million Dollar Question: Can Angel Investing Create a Greater Yield? Yes, absolutely, and great wealth has come from it. The wealthiest invest privately in companies to get a greater yield. Sometimes it comes from a friend of a friend. Sometimes it comes from meeting a company at an investor event. Their is Risk involved in all of it. Fortunes have been lost in real estate that was bought with high interest at the wrong time….did not Trump almost lose it all from a real estate and credit slump about 20 years ago? The stock market has robbed people of their retirement and their livelihood too. It all comes down to this: mitigate risk and diversify.

Written by Karen Rands, President and CEO of Kugarand Holdings LLC; article source

A recent article on the Fortune Small Business addressed this very topic:  Angel investors operating in organized groups are seeing average returns on investment similar to those enjoyed by venture capitalists, according to a new study.

The Article went on to say:

Kauffman Foundation and the Angel Capital Education Foundation, the “Returns of Angel Investors in Groups” study claims to be the largest of its kind. The study shows that organized angel investor groups in North America have seen average returns of as much as 2.6 times their initial investment over three and a half years from investment to exit.

Therefore….

That’s an average internal rate of return (IRR) of 27%, similar to the average IRRs seen by private equity investors such as venture capitalists, who usually get involved in a business at a later stage of growth and are therefore commonly thought to take on less risk.

For the wealthy person, thinking about creating a greater yield from his or her portfolio, this is great news. Yes there is great risk with angel investing, and it inherently it is unpredictable, but there are certain things that can be done to mitigate risk and you can set up criteria that helps you reduce the emotional element that causes some investors to invest when deep down they know they should not.

This also speaks to the value of having access to due diligence documents and access to groups of angels or other angels that can help mitigate risk, either because of their knowledge or just the collaboration that comes from multiple investors going in on an investment.

To become a successful angel investor, it is important that individuals learn how to identify and screen opportunities for early stage private equity investing. These can be great investment opportunities! These investments have the potential to reap big rewards for early investors who are not afraid to take a risk. Just ask anybody who invested in Google, MicroSoft or Home Depot!

The bigger the risk, the greater the reward! Success builds confidence! These savvy individuals are probably searching for the next big idea or looking for their next big investment opportunity! If they became successful angel investors, you can too! Do not neglect the opportunity to become an angel investor!

Written by Karen Rands, President and CEO of Kugarand Holdings LLC, a company that connects entrepreneurs with Angel Investors.  Article source.

Angel Investor Presentation

Five Tips for a Successful Angel Investor Presentation

When presenting to investors, the most important thing influencing your audience is visual (i.e., your body language), then vocal (your voice and speaking rhythm) and then verbal (the story you tell).

Also, when you present in front of a group, your natural “fight or flight” instincts kick in. Your adrenaline starts pumping and you often get anxious and fidgety. The way that you act as a result of this poorly impacts your audience’s perception of you.

To decrease your anxiety, use the following techniques:

1. Practice, practice and practice some more. The more you practice your presentation, the more comfortable you will be when you give it.

2. Concentrate. Just like an elite athlete, you need to clear your mind before the presentation so you can fully concentrate on the task at hand.

3. Shift Your Focus from You to Them. If you give a presentation and your best friend happens to be in the room, chances are that after the presentation the first question you will ask your friend is “How did I do?”

It is this mentality of thinking about yourself that makes people nervous. Rather, focus on the audience. Look at them and think “how are they doing?” This will allow you to present more effectively.

4. Focus on specific people in the audience. Whether there are three prospective investors or business partners in the room, or you are speaking to a room of 50 or 500, you need to visually focus on one person at a time. That is, pick one person to start and complete your first main point. Then you should shift to different people for each key point you make during the presentation. This helps you concentrate better and make sure you are focusing on the audience rather than on yourself.

5. Practice your hand gestures. Hand gestures often positively engage an audience. But, making hand gestures in front of an audience often feels awkward and uncomfortable. You must practice using them with “warmer” audiences (e.g., your friends, co-workers and/or employees) until they become second nature.

Like it or not, your public speaking ability and presentation skills are more important than the content of your presentations. As such, successful entrepreneurs need to master these skills. Use these tips to improve your skills, and remember to really practice all your presentations before the actual event. As you know, in most cases, you only get one shot at key presentations.

Written by Dave Lavinsky, article source

Many would-be entrepreneurs who are long on vision but short on capital think that “angel” investors are the way to go for start-up capital, and they very well may be. Before approaching them, here are 10.5 things you should know:

• 1) Angel investors generally participate in the early stages of a company’s growth; they will plan an exit strategy to recoup the capital they have invested within 3-5 years. At that point they expect their companies to have enough of a track record to be able to attract capital from sources that can invest a greater amount but are more risk-averse; for example, though a sale of the company. This may be through a public offering of shares (an Initial Public Offering, or IPO). Angel investors will typically sell their shares in your company at that point.
• 2) They want to make money and will cull over many proposals to find companies that they feel will be successful. Even so, they are realistic enough to know that not all of their angel investments will succeed. The success rate is typically around 30-50%. Therefore, they try to balance long shot investments with those that are more likely to succeed.
• 3) Unlike venture capitalists, they are often motivated not only by the prospect of making money but also by the desire to be involved in the operations of their companies as advisors or mentors. Often angel investors are people with management expertise themselves; they may want to nurture the growth of their companies by participating in such management activities as strategic planning or marketing.
• 4) They will want to know a lot of things about you and your proposed venture, foremost among them whether you have put your own money into it: have you, or are you willing to, take out a second mortgage on your house to fund it? Have your friends and family invested in it? In the language of angel investors, this is known as “having skin in the game.” If you can’t answer yes to these questions, they will probably conclude that you don’t have enough confidence that your idea will succeed in the marketplace to put yourself on the line. Why, then, should they have enough confidence to invest in your venture?
• 5) To a certain extent, they will expect you to understand the limits of their knowledge: what they know and don’t know, and to present your proposal accordingly. One of the things they will probably not know is the extent to which your idea is unique and protectable - particularly if it involves intellectual property, as many new companies do today. Speak to these issues without prompting.
• 6) They look for certain personal characteristics. Have you shown that you have integrity? Do you communicate clearly? Listening, which is perhaps better called “hearing,” is both a necessary and rare skill. And express yourself in a lucid fashion; this includes speaking English to them rather than the language or jargon of your field or its technical details.
• 7) Demonstrate both flexibility and agility. You may have the world’s best idea and the world’s best business plan - today. Conditions change rapidly, and you may have to be quite nimble in order to keep up with tomorrow’s market.
• Know that everything is negotiable, and be prepared to negotiate with them and everyone else. The skills noted above are key to win-win negotiation. Aim to create win-win situations.
• 9) In the end, as with most other decisions, gut feel is often the determining factor in angel investors’ decisions. In the end, their decisions are based on emotion, as most decisions are. But they need facts to justify their instincts.
• 10) They tend to run in packs - not herds, but packs. That is, individual angel investors may form groups interested in businesses in the same general area such as technology or biotechnology or in the amount of risk that they are prepared to assume. It is perfectly acceptable for you to ask, if you are turned down by one or a group of investors, if they know anyone else who might be interested. They often know each other and will happily recommend other people for you to contact - provided that they feel good about you and your idea.

10.5 They will not descend from the heavens on gossamer wings carrying bags of money. If by some chance they do, they’re not just simply going to hand those bags over to you.In short, there is nothing supernatural about angel investors. If your first attempts don’t pan out, persevere; if your strategy is good, change your tactics. Keep on keeping on. Above all, stay out of your own way. The tips above should help you to do that. Eventually you will either find an investor or decide to give up. But don’t give up too fast.

Written by Jeanette T. Wallace, Ph.D.  Article Source