Calling On Angels - Part 2
In reality, the type of company an angel will invest in depends on the angel. But there are truisms that can help you research potential investors so you target those most likely to take interest...What Types of Companies Do They Invest In?
In reality, the type of company an angel will invest in depends on the angel. But there are truisms that can help you research potential investors so you target those most likely to take interest in your venture.
First, research shows that angels tend to look for deals within a geographical area. For instance, Lon E. Henderson, president and CEO of Soltis Investment Advisors and founding member of Dixie Angels, says his group will entertain deals throughout the region, but they will look hard at companies in the St. George area.
"We're open to the state and the region, but we do have a priority of trying to be an economic stimulus for Southern Utah," he says.
Next, angels tend to focus on companies that match their expertise. Hall prefers companies with a technology focus or a sales and marketing emphasis because his background as the founder and chairman of MarketStar allows him to bring deep industry knowledge and a strong network to the table. Ronald W. White, a long-time investor and member of Olympus Angels, does strictly information technology deals because of his experience and background in that industry sector. With his degree in computer science and his long history with technology companies, local investor Greg Warnock also tends to be most attracted to technology-oriented businesses.
"It's because of a comfort level they have," Hall says. "They understand the market, they understand the industry, they understand the products and competitors."
But Hudson points out that organized angel groups which are an increasing trend across the country, not just in Utah are helping individual investors expand their industry knowledge and investment opportunities.
"Over time, these groups are going to become more sophisticated and better investors because the investors themselves are learning from each other, certainly learning more about technologies and industries that one angel may not know about but their colleague in that group does," she says.
When Should You Look for Angel Investment?
One misstep entrepreneurs make when seeking angel investment is looking for it too soon. The first money in your company should come from your own checkbook, says FundingUniverse's Blake.
"I call it the capital food chain. The first place you are going to go to is yourself whether that be through savings, personal credit cards, second mortgage, etc.," Blake says. After bootstrapping with your own funds, you can move on to friends, family and fools anyone in your personal circle who believes in you and is willing to invest.
If you are going to seek outside investment after that, angels may be a good next step. As with industry sectors, individual angels have their own comfort levels at which stage to invest, but most angels tend to look for early stage companies who have moved beyond an idea on paper and are positioned for growth.
"I look for firms with validation in the form of revenue and customers," says Tony Howells, a member of Olympus Angels. "Volumes of analysis can't authenticate a business plan like paying customers who are representative of a larger market."
"If you have somebody who's out on the market with a product and a few sales, the proximity to a meaningful business is a little bit closer," echoes Warnock.
"I think that's where we can best apply our money," Hall says. "It's going into a stage of the business which is probably the most critical, and that is to generate and accelerate the revenue growth."
So if you have a great idea and a slick presentation, your company may not be ready for angel investment. But if you have a great product and a few clients, you may be primed.