Angel investors are a unique group of people who have a passion for finding, and investing in, opportunities with tremendous potential. Tech angel investors are a bit more specialised in that the kinds of projects they finance tend to be cutting-edge projects for which the success ratio is about 10 per cent. It should be obvious that every investor is not a perfect match for every project.
As a technology strategist and experienced tech angel investor, I have come across quite a few opportunities that were just not a good fit. In some cases, those seeking funding were not truly on the cutting edge of innovation. Other cases were built on excellent ideas but lacked a solid business strategy.
Of course, the angel investing street runs both ways. Even as investors prepare an extensive list of questions they intend to ask entrepreneurs, they should be prepared to answer some questions themselves. Here are five questions every angel investor should be able to answer:
What other investments have you made in our space?
Entrepreneurs deserve tech angel investors who have at least a modicum of knowledge about the areas they are investing in. A lack of knowledge does not inspire any confidence in the minds of entrepreneurs who are looking for advice as much as cash. They need to know investors know what they are doing.
How actively do you engage with entrepreneurs?
It’s one thing to be a technology strategist capable of offering solid advice. It is an entirely different matter to being an investor looking to exercise total control over a project in exchange for funding. Investors need to find that perfect balance between assisting and controlling.
How much follow-up investment do you think we will need?
Angel investors are known to ask entrepreneurs how much funding they think they will need in the future. The other side of that question is one of how much additional funding the angel investor believes will be necessary. An experienced investor should have a good idea of what it will take for a project to start turning a profit.
How do you help the companies you invest in?
Angel investors should be more than just a supply of funding. They should also have the ability to contribute in some real, tangible way. Entrepreneurs have a right to know how angel investors can contribute. They have the responsibility of making an investment worthwhile, but doing so requires help from investors.
Do you know other angel investors who might be interested?
This final question is one entrepreneurs don’t tend to think about, but should. Lining up groups of angel investors capable of contributing through multiple rounds offers the greatest chances of success. Entrepreneurs having to struggle through each round may spend more time raising money than developing their ideas.
Tech angel investors should be willing to answer as many questions as they ask. Only when investors and entrepreneurs are fully comfortable can a truly profitable business relationship exist.
By Chris Galley.
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