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What Do Angel Investors Look For Before Investing in Startups?

Startup Founders should be well prepared when pitching their startup companies to angel investors . The failure to have reasonable answers to the probable questions will decrease the likelihood of the entrepreneur’s company to receive funding and support by investors. The following is a list of key questions all entrepreneurs should be well prepared to answer during their investor pitch:

   So, expect that you will need to cover the following:

  • What does the company do?
  • What is unique about the company?
  • What big problem does it solve?
  • How big is the market opportunity?
  • Where are the headquarters?       

Opportunity in the Market  

You will need to showcase that the market opportunity is meaningfully large and growing.

You will receive questions like:

  • What is the actual addressable market?
  • What percentage of the market do you plan to get over what period of time?
  • Why do you think your company will have high growth potential?

Founders & Team Dedication  

Many angel investors have a strong beleif that the management team capabilities influences their decision whether to invest or not. So, entrepreneurs must show they are passionate towards their work and have relevant domain experience to prove their worth.  

You can receive questions questions as:

  • Who are the founders and key team members?
  • What relevant domain experience does the team have?
  • Why is the team uniquely capable to execute the company’s business plan?
  • How are they showing their commitment to the business?
  • How do you plan to scale the team in the next 12 months?

Products & Services Featuring  

The entrepreneur must clearly present what the company’s product or service consists of and why it is unique, so expect to get the following questions:

  • Why do users care about your product or service?
  • What are the major product milestones?
  • What are the key differentiated features of your product or service?
  • What have you learned from early versions of the product or service?
  • Can you provide a demonstration of the product or service?

Competitive Advantage  

The company’s competitors will always be an issue and any entrepreneur who responds with “we do not have competitors” will have credibility problems. So make sure you have answers to the questions.

  • Who are your competitors?
  • What advantages does your competition have over you?
  • How do you differential your product,price, features and performance with respect to your competitors?

Marketing and Customer Acquisition  

The investors will want to get a sense of how the company plans to market itself, the cost of acquiring a customer, and the long-term value of a customer. So, be prepared for the following:

  • How does the company market or plan to market its products or services?
  • What is the cost of a customer acquisition?
  • What is the projected lifetime value of a customer?
  • What is the typical sales cycle between initial customer contact and closing of a sale?  

Business Risks  

There inevitably are risks in any business plan, so plan to answer these questions thoughtfully:

  • What do you see as the principal risks to the business?
  • What legal risks do you have?
  • Do you have any regulatory risks?
  • Are there any product liability risks?

Intellectual Property Rights

For many companies, their intellectual property will be a key to success. The investors will pay particular attention to the answers to these questions:

  • What key intellectual property does the company have (patents, patents pending, copyrights, trade secrets, trademarks, domain names)?
  • How was the company’s intellectual property developed?

Finances

Any angel investor will want to know the company’s financial health. Be well prepared for these questions:

  • What are the company’s three-year projections?
  • How much equity and debt has the company raised; what is the capitalization structure?
  • What future equity or debt financing will be neeeded?
  • How much burn will occur until the company gets to profitability?

Financing Round  

The investors will want to get a clear picture of how much is being raised in the financing round and related information as follows:

  • How much is being raised in this round?
  • What is the company’s desired pre-money valuation?

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