Angel investors questions and answers for African entrepreneurs. This article answers ten questions about angel investors that African entrepreneurs would find useful.
As angel investors are increasingly making cross-border investments, African entrepreneurs with brilliant ideas that solve real problems might find willing angel investors from across the world.
Here are 10 question and answers that would help clarify what angel investors are looking for in entrepreneurs and how best to attract the right business angel.
Why are angel investors interested in entrepreneurs?
Angel investing is when individuals rather than institutions invest their personal capital in an early stage company.
This early stage company is called a start-up. Angel investors or business angels as they are sometimes called , invest money in companies they hope will grow.
And when these companies grow, they bring them significant profit.
In addition, investing in start-ups give angel investors the opportunity to advise and mentor entrepreneurs.
Also, they themselves learn new things. Sometimes angel investors help entrepreneurs to refine their business plan in response to market changes.
Not everyone who claims to be a business angel makes money from their investments.
Those that make money are usually the business angels that have a portfolio of well selected and managed start-ups.
Such business angels make up to 25%-plus annualized returns on their investments.
Why are angel investors interested in start-ups?
Reason why angel investors are interested in start-ups include:
- Financial motivation – there’s an expectation of economic returns.
- Social giveback – many angel investors are or were entrepreneurs. So, there’s a strong connection to start-ups.
- For some, it is about the thrill and opportunity to do what they love.
Why would an angel investor say no to an entrepreneur?
There are many reasons an angel investor may say no to an entrepreneur. Here are some of the reasons:
- If an entrepreneur does not show optimism and enthusiasm.
- Signs of an entrepreneur’s unwillingness to take advise may also lead to rejection.
- Also, if the entrepreneur is not technologically up-to-date.
- An angel investor looks out for personal references, if an entrepreneur doesn’t have suitable references, the chances of getting a yes is slim.
- Lack of good education. Many angel investors would not support drop-outs.
- In addition, a business angel would say no if the entrepreneur is perceived to lack integrity.
- If an entrepreneur is unrealistic in their business ideas, their cost assessments and financial projections don’t make sense.
- In addition, an angel investor might say no if the entrepreneur cannot demonstrate technical expertise.
Do angel investors take control of a start-up?
Therefore, an entrepreneur who has an idea, who knows how to execute that idea using the right tools, would attract a smart angel investor and not a shark.
How do I choose the right angel investor?
Entrepreneurs should choose an angel investor that resonates with them. That should be the first choice before the money
You’ll be grateful later on, that you chose an angel that shares your values. You’re better off with an investor who would stick with you for long. That is, one that appreciates and values you as an individual not just your company.
Is my rich uncle who invested in my business an angel investor?
No, your rich uncle who invested in your business is not an angel investor. There are two classes of investors: the formal and informal investors.
The formal investors are institutional investors such as banks, venture capitalists and other financial institutions that invest in businesses.
The informal investors are individuals who use their own personal money to provide capital for a business owned by someone else.
Under informal investors we have the family and friends investors. These are individuals who invest their personal money to provide capital for family, friends, neighbours or colleagues. Your rich uncle belongs to this class of investors.
Although angel investors are also informal investors, they differ from family and friends investors.
An angel investor provides their own personal money as capital for a business in the form of debt or equity to a business not owned by family member or friends.
Are all business angels wealthy?
Although there are people who are not wealthy (not high net worth) individuals, who are angel investors.
However, angel investors are likely to be wealthy people often called high net worth individuals.
What is the difference between a passive and an active angel investor?
The main difference between a passive and an active angel investor is that, the former invests their personal money in the company but is not involved in the development and running of the business.
Whereas, the latter invests their personal money in the business and is also involved in the running and the development of the business.
What qualities do angel investors look for in an entrepreneur?
Generally, business angels look for qualities that would make a company grow, in an entrepreneur.
They look for qualities such as: leadership, creativity, knowledge, integrity and experience.
What financial documents do angel investors require?
As mentioned earlier, economic motivation is one of the reasons for angel investors’ interest in start-ups.
Therefore, any information that is closely linked to that is of interest to them.
For example, they want to know if you have good margins and whether you can generate scalable revenue.
Similarly, they want to know if your business will generate more cash than it will spend.
Also of equal importance is the information about when your business will become profitable.
So, business angels will typically ask for information found in these three financial statements -the income statement, the balance sheet and the cash flow statement.
How can I find an angel investor?
High net worth individuals (HNIs) tend to be very busy and they also guard their privacy. So making cold calls might not be possible or ideal.
However, you can make use of your personal networks – family, friends or friend of friends that know HNIs.
Also, your bankers can also be of help – they tend to know HNIs.
Other ways to find angel investors is through start-up conferences, business plan and business pitch competitions and through incubators and accelerators.
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