Angel Investment Today

by | October 30, 2009

Our guest blog post to wrap up this topic is from Loren Lyon, CEO of Magic Wheels, Inc. and presenter at the Zino Society Zillionaire Forum in September. Loren shares insights as to what investors are looking for now.

Having been on both sides of the fundraising fence, as a potential investor and as a CEO attempting to raise money, I can say that fundraising in 2009 is challenging and requires more thought as to approach and fit with the potential investor.

In the late 90’s fortunes were won and lost in the Dot Com lottery and brick and mortar companies with reasonable business plans found “tough sledding” in the Venture world.

Following the Dot Com bust, what some called “real companies with real products” gained more favor with investors. Timing of a company fundraising effort was pretty critical if you were on either end of this window.

Venture Funding has been constrained dramatically over the last several years related to the general economic and stock market conditions and that has created a ripple effect, pushing deals that once would have been logical Venture Capitalist plays squarely in the lap of Angel investors.

Angel investment groups are making investments but individuals often hedge their bets with smaller investments in more opportunities. Fewer eggs in more baskets.

Today, there are venues of Angel investors that are attracted to certain types of opportunities.

Identifying those investors who find your product or service interesting/valuable is very important to successful fundraising. i.e. if one group has a fairly strong propensity to invest in real estate related deals, and another has a strong software/internet bent, taking an OEM hardware company to either of these is likely to yield fairly low response.

Given the tough investment market conditions, most companies in search of funding “cover all the bases” by presenting to as many investment groups as possible. This is a reasonable strategy as long as it is coupled with appropriate expectations of results.

Experience tells us that Venture funds are much more concerned about the hard facts and Angels tend to be swayed with personalities and presentation styles.

Consequently the success or failure of raising money with Angel groups is often strongly linked to the connection between the investor and the presenter/company representative.

So calibrating your audience is an important element in fundraising. Most organizations offer assistance in tuning each presentation to their audience. This is valuable assistance and should be utilized for the best effect with each audience.

There is a lot of money “on the sidelines” right now that really needs an investment home.

Several years ago, one could argue that the relative risk/reward ration of investing in a start up company was high vrs a general stock market portfolio.

Today, I think that many Angels are seeing that ratio narrow.

The overall risk and upside in the stock market is not so far apart from a carefully selected private equity investment in a start up company and the ROI is generally much greater.

So there is money that needs investment homes and there are good private equity plays that offer superior “Risk vrs Reward” ratios for careful Angel investors.

Key elements for investor consideration:

• Management track record of success
• Market size
• Long term market trend (aging population, green, energy, health care, internet)
• Idea Scalability/Reasonable growth plans
• Liquidity Strategy
• Offering, (Simply stated, is this a good deal?

Identifying the Risk vs the ROI has always been the key to raising funds to bring an idea into the market and it still is. Presenting it to the right category of investor has become more important than ever before and more complex.