Angel investors are key to financing your business. They can provide the capital you need to get your venture up and running. In this post we thoroughly explain how you should prepare before approaching angel investors.
However, as with any funding option, there is risk involved too such as the risk of potential investor losing interest or asking for too much equity stake from your startup, or even the risk of mismatch between angels and founders.
To minimize that risk and increase your chances of closing a deal, it’s important to prepare before you sit down with an investor.
That’s why we’ve put together the following list of five questions you should ask at your first meeting with angel investors. Read on for more information about how these questions will help you determine if an investor is right for you and how prepared they are to invest their money in your business.
1. What is your investment goal?
Investors will likely tell you what they are looking to get out of the deal. So they might indirectly talk about their goals and investment objectives (source).
However, you need to know if they are truly interested in partnering with you or if they just want to get their hands on some cash.
You can ask a few follow-up questions to learn about their vision, how they started their investment journey and what they think about their future to learn about their goals and philosophy of investment.
That will tell you a lot about their level of interest in the deal, their willingness to invest, and where their head is at in terms of their own ambitions.
If they invest in startups because they are interested in the space or they are excited about the particular industry, that might be good news for you. It may also be a sign that the investor is willing to be hands-off and let you run the show.
Knowing an investor’s investment goal will help you determine, among other things, how much you need to bring to the table, what kind of terms they may be looking for, and if they are a fit with your deal.
2. Who are the other investors in your deal?
Based on our experience and observations, many angel investors would like to invest jointly in a startup (if possible) for various reasons such as sharing the risk, bringing complementary resources and skills, etc. It’s important to know who else is involved in the deal and you can do a little research on different types of angel investors.
This will give you a sense of the level of interest in the deal and help you to better gauge the people involved. It can also provide you with information about the deal’s value and help you determine if the investors involved are a good fit for your deal.
You might think before the meeting that the angel investors you are going to meet will naturally talk about other investors that might be involved but you are probably wrong. While in the first meeting, perhaps it is too early to ask specific questions in this respect, you can pose it more broadly like “Do you typically co-invest and with whom?”
It is important to consider the following questions:
Do they have the right level of experience? What is their track record of investment? Will it help their portfolio grow? These questions can be answered, at least to some extent, by knowing who else is in on the deal.
3. What is your time frame for investing?
This is one of the first things you should know about an investor.
If they are willing to commit some of their own money and help you raise funds, you want to know how long they want to invest (source).
If they want to invest immediately, that may not be the right deal for you since the the whole process typically takes 1-3 months for angel investment and you are looking for a long term partner.
However, if you are in hurry due to limited runway and cash flow, this question is crucial because it tells you how fast they are willing to make decisions.
Again, it could be that they vaguely answer your question but you can ask specifically about the previous deals they closed and its duration.
If they are looking for a round of financing that is three to five years out, that might help you raise the funds you need. However, it might also be too far out to help you right now.
4. What do you look for when making an investment decision?
This is one of the best ways to show that you have done your research and that you are ready to get started raising funds.
By asking this question, you are inviting investors to give you some insight into their investment criteria. You basically ask them to explain how and why they accept or reject a startup investment proposal.
Investors like these questions since they get the impression that you are really motivated and “care” about them. Additionally, they would have the opportunity to talk about things they are passionate about (who wouldn’t love to talk about their passions?).
This can be very helpful because it can also help you determine if an investor is a good fit for your deal. Through looking into their criteria, you can see (again) their objectives, ambitions and why they pick a startup and can compare those with your goals, ambitions and the future plans.
It can show that you have done your own due diligence and are ready to move forward with the deal. So, all in all, this is surely an important question to ask angel investors.
5. Which startups do you typically invest in?
This is another great way to show investors that you are prepared to move forward with the deal.
If they are looking to invest in one particular industry or area of interest, you can tell them more about what you are working on. This will help to further assess to what extent there is a match here.
It can also help you to better gauge the people involved in the deal and how they might be a good fit. It gives you a good perspective of their network or the ecosystem they are involved in and how it has formed.
By being more specific with your request, you can make sure that the investor you are meeting with is a good fit for your deal.
Wrapping Up: Going back to the beginning
As you prepare for your first meeting with an angel investor, be sure to be prepared. This will ensure that you are able to get out of the meeting with as much information as possible.
It will also help you to be more confident in your ability to meet people and to negotiate the terms of your deal. Start by getting to know your prospective investors.
What are their investment goals? What are their other deals like? What makes them an ideal fit for your deal?
Once you have this information, you can start to better prepare yourself for your meeting. This includes knowing an investor’s investment goal and who else is involved in the deal. When you know these things, you will be better equipped to negotiate for the terms of your deal.
