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Since around 90% of start-ups fail. (21.5% in first year, 30% second year, 50% fifth year, and 70% in 10th year), Business Angels are generally very cautious about who and what investments to make.
If only 2 or 3 businesses make it beyond 3 years and possibly only 1 hits it ‘big time’, then the investment ‘returns’ have to be pretty high.
So, Angels will invest time, experience and money but, they will look for proof of concept, market and financial projections, business experience, etc. They will also want a place on the board and (often) a real input into strategy and how things are run for which they will also want some (form of) monthly payment. While they’ll want a say in the day to day operations, generally they will not expect to get involved with this.
Businesses looking for Angel Investment will need to show:
As a ‘rule of thumb’, expect your Angel Investor to look to exit and realise their investment within 3 to 5 years, maybe sooner.
The stake you will have to give away will vary according to the weighting of all of the above, and more besides.
Any Business Angel will want to know how committed you are to seeing your business grow. So be prepared to demonstrate how long you have been working at this, how much time you currently give to it and what you expect to put in in the future.
They’ll also want to see what capital you – and your friends and relatives - have committed to the business and what form this has taken; e.g.
Also, you’ll need to explain how you have – or will you be able – to protect your business and ideas from competition and what new ideas, products or services you have in fact or in mind for follow on growth.