Steph Korey Explains What Drives Angel Investors Forward

Snapshot of an Angel Investor

At the other end of the spectrum, angel investors help to fund start-up and/or early-stage companies. In many cases, these investors execute the business’ first outside capital investment (beyond the founders or their family and close friends).

What Angels Bring to the Table

In addition to their cash investment, an angel investor frequently contributes their entrepreneurial experience and targeted expertise to the venture. To illustrate, a highly successful medical device manufacturer may offer funding and guidance to a startup with an innovative product but with little cash to bring it to market.

The Value of Goal Alignment

To create a mutually beneficial business relationship, both parties must share a commitment to the same values and goals. That philosophy certainly holds true in the angel investment arena. The UK-based SyndicateRoom, a data-driven early-stage investment group, conducted an early-2022 angel investor survey that showed investor-business alignment to be a top priority.

Alignment with Social Philosophy

Many angel investors work with business owners who share the investor’s commitment to specific social causes. To illustrate, an investor with a commitment to sustainability may choose to support a business that furthers that goal in some way.

5 Ideal Attributes on Angel Investors’ “Wish Lists”

Although most potential investments aren’t likely to check all the boxes, angel investors look for certain positive attributes in every investment candidate. Elizabeth Kraus, MergeLane Chief Investment Officer, shares five angel investors’ “Gold Standard” criteria.

Proven Leadership

Angel investors want to see a CEO with documented achievements in this business arena. Whether they have successfully marketed a similar product, or have engineered a profitable exit from other ventures, their ability to skillfully navigate complex business challenges is highly desirable.

Large-scale Market

Business owners should have completed extensive research on their target market. They should have also obtained guidance from a reputable market research firm with proven expertise in similar industries.

Protected Intellectual Property

An investment candidate’s intellectual property should have ironclad protection via one of three methods. Patents and trade secrets are two commonly accepted intellectual property protection vehicles.

Significant Sales

Ideally, the business has already realized substantial product sales volume. MergeLane’s Elizabeth Kraus says a sales volume of at least $300,000 is an optimal figure. Alternatively, the company has documented sales/licensing contracts that ensure distribution of upcoming production.

$4 Million Maximum Valuation

An angel investor ideally wants a 5X-10X return on their investment. Therefore, they prefer that the business have a pre-revenue valuation of $4 million maximum. This number is not set in stone, as it can be affected by the industry, business’ geographic location, and business stage.

Strong Emphasis on the Financials

Angel investors are keenly focused on their potential investment returns. Therefore, they carefully analyze each candidate’s current financial position and future projections. Forbes highlights three finance-related issues important to angel investors.

Intimate Financials and Metrics Knowledge

Investors want to know that the business’ founder genuinely understands their company’s financials and key metrics. Besides providing an in-depth explanation of each term, the founder should be able to coherently address questions related to the term’s applications. Common financial terms and metrics include:

Realistic Financial Projections

An angel investor wants to support a business that is positioned to achieve significant growth in a realistic timeframe. If a business owner projects accelerated growth, but they lack the sales figures and infrastructure to support that expansion, the investor may well discount that candidate. Other unrealistic projections may experience the same fate.

Reasonable Capital Use and Burn Rate

Each potential investor wants to know exactly how their capital will be used. Equally importantly, they want to know the business’ estimated monthly burn rate.

More Key Questions

Also on the financial front, the angel investor wants to know how long it will take for the business to generate a profit. In a similar vein, the business owner should provide information on the company’s projected capital needs (if any) for the future.

Industries to Watch in 2022

SyndicateRoom’s early-2022 angel investor survey produced some intriguing results. Collectively, the angel investors hoped that additional sustainable investment opportunities would emerge during the year. These successful investors also expressed a desire to work with more female-owned and ethnically diverse businesses.

About Steph Korey

Entrepreneur and angel/early-stage investor Steph Korey brings a multifaceted skill set to her investment activities. Her rich multicultural upbringing helped to drive her interest in collaborative entrepreneurship. At Brown University, she earned a B.A. in International Relations. Korey also earned her MBA from Columbia Business School.

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Steph Korey is an entrepreneur with extensive experience, as well as an angel and early stage investor.

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