As a follow up to what percentage of active angel investors are on #angelList, I thought I’d address the orthogonal question. The follow up is to help entrepreneurs figure out how to come up with the list of criteria to create their target list of 20-50 angel investors for their #NapkinStage startup.
There are 5 primary criteria I use to help entrepreneurs find the right target investors.
1. Location. 2. Company Stage. 3. Space (Market). and 4. Raise Amount. 5. Network.
1. Location. All angel investing is largely bound by “what do we have in common”. Many angel investors prefer to invest in areas they have expertise in, in entrepreneurs they know and in their “own backyard”. There are a few exceptions (many Indian angel investors in the US, like to invest in companies in India), but angel investing is largely a “city specific” opportunity. If you can find the top entrepreneurs and high net worth individuals in your city or expats who are from your city but have left to go abroad, who you know, that would be a good place to start.
2. Company Stage: The further along you are from the #NapkinStage (yes, I know the irony in this criteria) but not so far along to be expensive, is when angel investor like to invest. I am going to put some simple stages – Idea (#NapkinStage) (or concept stage) – when you are formulating the problem with your cofounder, then the #PrototypeStage, then #CustomerPilot stage, followed by #MVP, and then the #TractionStage and finally #RevenueStage.
Most entrepreneurs need investors at the #NapkinStage through the #TractionStage, but most angel investors prefer to only invest at the #RevenueStage. The number of purely Idea stage investors is fairly small – limited to your network, since this used to be a Friends and family round.
Most entrepreneurs also like to join an accelerator at the #NapkinStage as well, but most accelerators prefer to take companies at the #Prototype or the #CustomerPilot stage.
3. Space. (Market): This would be the most obvious, but I am surprised by the number of entrepreneurs who reach out to folks who have been in B2B all their lives with a consumer internet opportunity. While, there are exceptions when folks who like to invest in areas outside their expertise, most angel investors I know tend to “stick to their knitting”, since they like to add value beyond the money.
4. Raise Amount: Depending on the amount of money you are trying to raise, you might want to create a target list of 20 to 50 investors. The average angel investor puts between $5000 to $50K per company. There are exceptions, of course, with some angel investors putting as little as $1000 and a few also putting up to $250K. If, you are looking to raise between $250K to $1 Million you want to target between 20 to 50 angel investors, which is the right number of early targets to get about 5-10 investors signed up.
5. Network: This is probably the most important and sometimes the only criteria needed. If you can dig your well before you are thirsty, it makes it easy to raise money faster. The first place I’d start to build my target investor list is the people in your network, who you have worked with before and those that know you well.