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MenuAngel Investors & VCs: What inspires you to invest?
I am writing a blog post for the Clarity blog, rounding up reasons why angel investors and VCs give back to the startup ecosystem. I would love a 1-2 sentence contribution from you to include in the roundup. Thanks!
Answers
As an angel, what I look for is founder/market fit. Does this entrepreneur have a fire in their belly to solve a problem and a really unique and inspired look at the market they are attacking?
The motivation to angel-invest for me as an active entrepreneur is to build a strong network of founders who can help each other and share commonly applicable experiences.
As an angle and VC, the #1 reason you invest in a company is generate a 3x+ return on at least 45% of the deals. The main reason to " Give back" to the ecosystem is for deal flow.
There are tons of great ideas out there the hardest part is finding a founder who understand s their limitations and is willing to adapt with added leadership the Angles & VC's need to bring in.
Once the startup takes funding the game changes and now they have a fiduciary responsibility. If founders don't understand this change, it will become very interesting.
I used to invest in business plans and ideas. I gave that up pretty quickly as it is a failing model. I now invest in the following:
profit
revenue
customer lists
my enjoyment at working with the team.
That is it.
#1 by far is "People". I invest in startups based on who are the people involved, how skilled they are in their respective roles, how I like them, what their product or service is and if I personally am interested in what they are selling.
#2 by crunching the numbers. They must have a viable revenue stream from paying customers. Too many startups I look at live off their seed round and eat that up and start their A rounds while still in freemium mode. By the time they get that far they had better be producing enough revenue to sustain their day to day operations and use the A round to diversify and expand.
#3 I do my own market research on the market segment and current and future competition. I like companies who are #2 or #3 in their respective market segment. It's a nice comfortable spot to sit and "draft" behind the #1 market leader. When they make a shift you can react by coming up with a revised or better version of the same product or service. Let #1 make the big mistakes.
#4 Lastly, I look at who else has invested in the company or if they participated in one of the many incubation programs out there. I have about a dozen or so angels that I track and about five or six VC firms. If one of my tracked angels or VC's invests I pay attention and most likely follow suit.
#5 I track potential investments by geographic region and general industry segment like this:
Silicon Valley - Big Data
Silicon Beach - Internet of Things
Silicon Desert - Mobile Apps
Silicon Prairie - Aerospace
Silicon Slopes - BioTech
For each category as above I try to track 3 startups in each.
One difference between venture capitalists and angel investors is what money they use to invest. An angel investor is an accredited investor who uses their own money to invest in small businesses. Many angel investors are small business owners’ family and friends. Small business angel investors focus more on helping build someone’s business than profiting right away. Angel investors and venture capitalists invest in businesses at different stages. Angel investors are more likely to invest in businesses that are just starting out. Because of this, angel investors take more risks than venture capitalists. If you are just starting out, an angel investor might provide you with enough money to get off the ground.
You can read more here: https://www.patriotsoftware.com/blog/accounting/venture-capitalist-vs-angel-investor/
Besides if you do have any questions give me a call: https://clarity.fm/joy-brotonath
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