How to Choose Which Angel Investors to Partner With

When entrepreneurs first raise money for their startups, they often turn to angel investors. That approach makes sense, but with over 265,000 active angel investors in the U.S. alone, how does a CEO find the right angel investor? And what is the right angel investor anyway?

Who are these “angel” investors?

Angel investors are affluent individuals that invest in businesses, usually in the early stages. The term “angel” owes its origin to the theater industry in New York.  “Angels” provided money to back theatrical productions. Most often this was for marketing or to keep the production from shutting down.

It’s not unusual for an angels to have been CEO’s of successful startups themselves. Other times they’ve achieved financial success elsewhere in their professional lives. Doctors, lawyers, accountants and real estate investors are examples that entrepreneurs often encounter.

Sometimes an angel investor comes in the form of a friend or family member. Other times they are members of angel investor networks.

The average deal size of angel only investment has grown to about $700K, according to the latest Halo Angel Group Update.  There’s also a growing trend of seed deals happening in the $25-50K range to help entrepreneurs launch products.

Healthcare and software are the hottest sectors for angel investment today. That changes from time to time, and if you have a good opportunity you’ll find an interested angel investor regardless of your market.

SmartMoney Angel Investors

It’s tempting to take money from the first investors willing to invest in your startup. But as I shared in this story, that can result in a $1.65 billion mistake. Trust me, you don’t want to make that mistake.

What you’re looking for is a “smart” money angel.

SmartMoney angels are those who can bring much more than money to you. They already know something about your “space,” ideally a lot. They understand your customers, your competitors, the suppliers crucial to your success and the macro-trends affecting your vertical market.

I describe how to find the right investors in the SmartMoney Playbook. It’s free, and you can grab it here.

If you’ve got a hot opportunity cooking, you’ll have no trouble lining up potential angel investors, either through individual recruitment or via angel groups. But before you pull the trigger and take an investment, be sure you’ve chosen the right LEAD investor. The one who will not only provide you with much-needed capital but can mentor you through the growth path you’re embarking on.

Why? Because they’ve been there, done that themselves. This person will be more than your investor. He or she will also be your sherpa. The best way to increase your odds of success is to get someone on your team who has been there, done that.

Having other angels tag along is fine, as long as you don’t anoint them the lead role. They should not have a leadership position at all in your boardroom. Reserve that distinction for your lead angel.

So when you start looking for your angel, remember that your #1 goal is to find a SmartMoney angel. Ideally, someone who has taken a business from zero to over $10 million in revenue within your industry. The only way you’ll know that is if you first create a target investor list and then screen investors.

Of course, the angel investor you’re going to want on your team will want some things first from you. Things like a clear business plan and strategy, traction with an enthusiastic customer base, and a path to leadership in a sizable market.

They’ll want to know how much money you need, what the use of proceeds is for, how long it will last and where it will take you. They’ll have similar questions about your marketing and operations strategies.

What I’m saying is, you should absolutely look for the best angel investor you can find for your business. But by doing that, you should also expect them to know their stuff. So you’ll need to know yours.

Bottom line? Have your elevator pitch and pitchdeck down cold before building your target investor list and approaching your target angel investor.

If you’ve got an advisory board, it’s great to recruit SmartMoney angels to join it after you screen investors, of course. They’ll help get you started, but ultimately you want them to invest $50K or more. That way, they have skin in the game. So when you win, they win too…and they love to win!

Watch, as I walk you through the importance of finding SmartMoney angels.