I am definitely not exaggerating when I say that there are a lot of misconceptions about angel investors.
In the world of entrepreneurs, there is a lot of predetermined ideas on what an angel investor does.
Being an angel investor, I would like to bust some of these myths. I also have a wide network of investors in my circle and it is safe to say that none of us are scary! People make us look like a blood thirsty Dracula and let me tell you something – we are far from that!
I will try and clear a few myths with this article.
Angel investors need complete control
It is often implied that, when you’re seeking funding, all of the power lies in the hands of the Angel Investors. While it is true that in order to get funding, you need to showcase the value of your company to the investors, it is not true that we need compete control.
Remember what the Angel Investor brings to you – the connections, background, credibility and knowledge that will immensely benefit your company. You can actually trust and build a real relationship with your Angel Investor.
Angel money is easier than VC funding
Let me tell you something – it is exactly the opposite. Imagine yourself as an Angel Investor. What you are doing is investing your own hard earned money. To open our purses is not going to be an easy task. Also, Angel Investors are well networked and can verify most domains. A VC’s livelihood is investing, whereas Angel Investors are not dependent on funding companies. They can actually turn back and decide to do something else with their money.
Angel investors make money on profits only
An Angel Investor does not have revenue or profits, but owns shares in the business. They make money by selling their ownership. Angel investors look at unit profits and also inorganic growth possibilities. They will not seek P & L (Profit and Loss) that is bound by time. Profits, without the exit, don’t flow to investors in normal start-up situations.
A company that loses money but grows well in terms of revenues, users, etc. is a good investment as most valuations are based on revenue. Paradoxically, investors may be better off with high-growth with money loss as their money becomes more precious when it is what can lead to growth. Investment is more likely optimized when it funds growth.
Angel investors look at low risk investments
Most start-ups fail. Angel Investors don’t look for the low risk investment that might yield a more reliable return, because they fail too. What they look for is the big win, the jackpot, the massive victory that will pay for all the failures that came before.
Angel investors don’t believe your numbers
The best market evaluations activate the dream and the imagination of the investors. Investors definitely want to see the numbers because they show what you’re thinking and how well you understand the business. Like anyone else, the Angel Inverter will review market numbers. However, it is your assumptions that will help them in deciding whether they believe them or not.
If Angel investors won’t fund you, then your idea is bad
This is definitely not true. We are not God. Some of the most prosperous companies that exist today couldn’t initially get funded. There are many other options that you can look at. If we don’t fund it, it could just mean that it is not in the industry that we invest in, or another subjective reason.
Pitching to angel investors and building relationships with them can be a nervous, but exciting time for many entrepreneurs. There are many more myths attached to Angel investing like these that could be preventing some start-ups from receiving the funding they might desperately need.
Angel investing can be extremely gratifying. However, one has to definitely understand investments and be prepared.