The devil in the detail of angel investment

3 October 2017
Category:
Entrepreneurs
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Handshake Photo by Tobias Wolter

You’ve got a good product or service but you need more money to expand or get it on the market. This is the point where you start to look for investment. Angel investors- individuals with money who club together- may seem an attractive solution.

As it’s their own money, they tend to be very cautious and set rigorous standards. So, if you’re looking for investment from angels, you will do well to heed the wise words of Gordon Miller of the American company G3 iVentures LLC.

Writing on quora.com, he describes the many hurdles you have to jump before you receive an investment. He starts with sifting through the large number of proposals he receives. It’s not dissimilar to looking for a needle in a haystack. Mr Miller shortlists about 10% and funds about 1%. This shows how important it is to have a clear, attention grabbing proposal.

The quality of the application is vitally important. “Most data is wrong or incomplete or based on false assumptions,” he says. Wild statements are definitely not appreciated.

Mr Miller also isn’t keen on dealing with people like you because what he calls ‘Founders’ often have a good idea but aren’t the right people to make it happen. So are you prepared to sell your product and walk away?

If you are offering a software solution, make sure your coding is correct. Mr Miller checks and seeks out bad code. Any shrewd angel investor will spot code that’s open source or been copied or simply doesn’t do what it says.

Don’t have high expectations. You won’t get that big investment that you want if you’re only prepared to give away a small share of your company. Mr Miller’s rule of thumb is that companies are worth one times revenue or 5 to 7 times net profit.

Don’t go to the angels too early. “If you are not sure you want to do the deal then DO NOT SIGN the deal,” says Mr Miller. His message is ‘grow revenue’ before you ask for investment.

If you are told ‘no’, don’t think pestering the angels will make them reconsider. “I almost never change my mind,” says Mr Miller. They will often give you advice on what you need to do to improve your prospects. Take note and return when you have a better product or service to offer.

Once you achieve the Holy Grail of investment, it’s not over. “The tedious part has just started,” says Mr Miller. “Showing up every day and making it happen is by far the hardest part.” He points out that the angels will be tracking you closely and holding you to the deal terms. They will try to help you achieve the agreed targets- it’s in their interest- but you will soon learn the difference between the freedom of owning your own business and having to satisfy investors.

Angels have good reason to be on your back. As Mr Miller says, “According to industry figures, 96% of all deals never get funded and 98% of that 4% that do get funded are non operational 5 years later. Those are terrible odds.”

Read Gordon Miller’s full article here.

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