What are angel investors looking for when investing in a business?

New research has revealed that business owners believe the business plan is the number one factor when angel investors are making decisions, but investors themselves have surprisingly different priorities.

What angel investors want to see

Businesses think the business plan is number one

Company Check, a website that provides data on UK companies, polled 3,000 business owners and asked them what they believed investors cared about most when making investment decisions.

The most popular answer was the company’s business plan (38 per cent) followed by their sales figures (27 per cent), with the founder (15 per cent) ranked third and the business idea and the economy coming in fourth and fifth place.

But Company Check founder Alastair Campbell, who recently secured $1m of angel funding for his latest startup Carsnip, said: “The findings are really surprising because for most startup investors (at an early stage) that I know, it’s all about the founder and the idea first, then the business plan and sales figures later.”

‘Who’ not ‘what’ makes the difference?

Sure enough, when Company Check asked the same question to investors themselves, the answers were quite different to what the business owners believed. Several angels agreed with Alastair, saying that they often looked most closely at the business founder when deciding whether to invest in a business.

Rory Curran, who has invested in companies including StatPro and Ecodesk, said: “Having invested in about 15 early stage companies – and seen some failures - my ranking would be founder, idea, then business plan; especially the technology, is it scalable or will it require substantial re-investment.”

Alfie Best, multimillionaire investor and chairman of Wyldecrest Parks, said that when he’s investing in an established business, cash flow is the most crucial factor, but he added: “If I’m considering an investment in a brand new business then the experience of the person heading it up and any other companies already on board to purchase their products are the aspects I evaluate first.”

Neil Austin, former head of global markets at KPMG and a serial investor said that if he’s the main investor, he’s looking at the idea, the founder and the business plan, but “the founder would be the most important.”

How angel investors work and what they want in return

Bear in mind that angel investors are typically interested in high-growth startups. They will rarely invest in lifestyle businesses that are likely to grow slowly and make only modest profits.

Investors will usually be looking for an exit in the next few years, which usually means the sale of the company or an initial public offering (IPO). When they’re deciding whether to invest in a business, they will want to know the exit strategy.

If you think your business is suitable for angel investment, remember that you’ll be selling part of your business by handing over shares to the investor. Also, depending on the terms of your investment, the investor may get some say over how the business is run. This can be a really good way of getting expert advice from an experienced businessperson, but you need to come to a working arrangement that you’re happy with.

Are you surprised about the priorities of angel investors? Tell us in the comments!

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