How To Create Successful Angel Investments

June 22, 2012 by Pauline Felward  
Filed under Investment

Angel investing can be a very lucrative business activity for high net-worth individuals if they choose the right projects. Good judgment, a basic grounding in managing businesses and the ability to accurately measure the feasibility of a business plan are the basic characteristics of a successful angel investor. However, as with any other business investment, angel investors also need to exercise some caution. If you would like to explore angel investment opportunities, the first and most crucial thing to do is to arm yourself with information about this kind of investing and do thorough due diligence before making an investment.

Often people can be unsure of the difference between angel investors and venture capitalists. Knowing the difference gives you a better idea of what this kind of investing involves. Typically, the angel investor is one who provides funding in the range of $25,000 to $250,000 for a small business. Venture capitalists are interested in bigger businesses that need far more substantial financial backing – anywhere between $5 million to $1 billion. Although entrepreneurs who are starting up a company do approach VCs for smaller requirements, it can be very hard to get them to notice your deal. It is usually much easier for an entrepreneur to do a deal with an angel investor, as they tend to be more willing to look at very early-stage deals.

As an angel investor you may receive hundreds of proposals. But only a handful of these may actually turn out to be well planned with a well thought out business plan. Separating the sound business proposals from the unviable ones is one of the primary and most important steps to take for successful angel investing. Never hurry through this process or allow yourself to be tempted into investing in all the proposals which you receive. Always keep in mind that angel investing is a high-risk investment opportunity. Only proper research and analysis can insulate you from losing your money because you invested in an unviable business plan.

Setting accurate returns expectations for your investment is crucial for success in angel investing. The entrepreneurs who approach you for funding will include returns projections in their presentation, but it’s clearly up to you to determine whether these returns are indeed realistic and feasible given the parameters and assumptions. By undertaking a comprehensive analysis of the business plan, the management and the market conditions you can make a fairly accurate assessment. One important point to keep in mind is that business investors typically favor projects that can give them returns in the range of 10 to 20 times their investment. This sets off the immense risk that these business investors undertake by investing in startups.

A strategy followed by many successful business investorsis to invest in local businesses or those in close vicinity. This gives the investor a ‘ring side seat’ to watch over how his money is being used. In fact, many business investments come with the stipulation that the investor is included on the board of directors. Being on the board gives you some amount of control to ensure that the business, and in turn your investment, is successful.

Mike Lebus has written about business investment and angel investment for the past two years. He is a great source of information for angel business investors and entrepreneurs looking to create the most profitable business partnerships. One of his primary focuses is business investment tips for companies in the Central US.