To follow up on Jason’s post about unfundable deals, I wanted to lay out some guidelines for what makes a company fundable to an Angel Investors.

Entrepreneur/Team

Angels invest time and money in seed/startup and early stage deals. They seek investments in ventures lead by inspired, experienced entrepreneurs who genuinely seek the counsel of an experienced investor/advisor. While the management team need not be complete, the entrepreneur should have a good understanding of the team necessary to do the job and probably has a team member or two waiting in the wings.

Scalability

Funding startup entrepreneurs is very high-risk investing. Only 10%-15% of startup ventures provide all the return on investment for angels. Consequently, angels only look at companies that can scale revenues quickly to at least $30M in revenues in five years or less. Angels personally invest $25K-$50K in seed/startup compaines.  They do so along with other investors to raise rounds ranging in size from $250K-$1M. (Less than 5% are larger than $1M.)

Business plan/Strategy

Angels seek entrepreneurs who have a complete plan for how they are going to turn their product into a business. The document commonly known as the “Business Plan” is decreasing in importance, but a company should have a well-articulated strategy to capture and defend a significant market share, including the ability to construct significant barriers to entry. Financial projections over three to five years are a must.

Location

Most, but not all, angels seek investments within a 3-hour drive, so they can conveniently visit the entrepreneur as needed. Helping local companies can also be part of the angel’s give-back strategy for his or her community.

Bill Payne is an angel investor on the west coast, and has a website here at BillPayne.com

Bill Payne :: Jul.30.2008 :: Entrepreneur, FAQ ::