Top 10 attributes of angel investors
1. Personal profile: Angels want the thrill of investing in a company and watching it take off. They want to give back to the local business community. Angels may have social or ethical investing requirements. They want friendship, camaraderie and fun. Angels usually don’t want run the business full time and therefore don’t want control. Over 90% are male, have a net worth of $1+ million and income over $200,000. Tax incentives including 50% capital gain inclusion tax rate, $2 million capital gain tax rollover and 30% investment rebate, help. 2. Advisors (Smart Money): Angels have “been there, done that” and successful. Some are new money and some are old money. They are experienced, savvy and can provide advice, mentoring and coaching that all companies need without micro-managing their investment. Angels usually do not invest if they are treated as only providers of money. They invest only in management, not in business plans. 3. Connectors: Well connected in their industry, markets and with service providers. They can open doors to other angels, venture capitalists, market alliances, and suppliers. VC firms like to invest if they know that a well-known Angel has already invested and is providing close support to company management. 4. Investors: It is not realistic to expect a millionaire to put $500,000 of their “higher risk” money into one deal. Successful investors always diversify and usually invest only 5% of their net worth in any one company. The Canadian angel investment average is $100,000 to $150,000. 5. Industry Sectors: Angels are looking for companies in industry sectors they can understand with rapid growth potential to drive up the value of their investment. Low tech manufacturing with numerous competitors does not grow quickly. Biotech has a long development to approval to market cycle. Bob Chaworth-Musters
6. Current criteria: Angels are more conservative as they want a business with a sustainable competitive advantage through protect-able patents or intellectual property. Or they want companies with some sales rather than at concept or in development stage. Others want a clear path to early positive cash flow or even early profitability. Some angels are still on the sidelines awaiting improved liquidity for their existing angel investments and diversification. So it is back to the basics of investing in good people, good technology, good value and hard work. 7. Decisions: Angels invest their own money and don’t have to invest unlike institutional venture capitalists that invest other people’s money. They tend to do minimal due diligence relying on background & reference checks, their instinct and so they do deals quickly. Angels invest close to their home in a legal and business environment they understand, so out-of-country or acrosscountry investments are not common. 8. Investment Exit: A typical angel is age 45-65 and therefore does not want to tie up their money for a long period. With equity market uncertainly, the old stand by of “IPO” is less likely. More likely is an acquisition leading to earlier liquidity of their investment. 9. Success Rate & Expected Return: Angels reject 90+ of opportunities presented to them. General rule of thumb is that 45% of investments strikeout, 40% are “living dead” and 15% are “home runs”. Angels expect annual returns of 30 to 100%. 10. Privacy: Angels value their privacy, which is why lists of angels are not available. Some angels are known sufficiently to have a constant deal flow via gatekeepers. Others like the Angel Forum in Vancouver because in one day they can review a wide range of 40 companies. Live presentations allow the time efficient initial evaluation of entrepreneurs and their businesses without the angel disclosing who they are. Bob Chaworth-Musters in 1997 initiated the BC Angel Forum (www.ANGELforum.org) where entrepreneurs present in person their companies to private Angel investors. He is on the Board of Directors for Canada’s National Angel Organization. The 16th Angel Forum is November 22 chaworth@direct.ca
www.ANGELforum.org