Angel Investing Q and A

Playing catch-up after a busy week at the Falcone Center for Entrepreneurship…where we gave away $45,000 in prize money to student ventures in our Panasci Business Plan Competition. Yesterday’s on-line edition carried an interview with the author one of my favorite entrepreneurship books, Susan Preston who wrote the wonderful book, Angel Financing for Entrepreneurs. I’ve pasted the entire Q and A below, but here is the link to the article by Colleen Debaise, “How to Win Angel Funding.” As a side note, if you are thinking of getting your venture in front of any angel investors, do yourself a favor and buy this book. You’ll do yourself and the angels you are pitching to a big favor. My old friend Doug Calaway used to tell my students at Rollins College that investors want to know "how much money do you want?"; "what are you going to do with my money?" and "when do I get it back?"

Here's the Q and A

Adapted from THE WALL STREET JOURNAL COMPLETE SMALL BUSINESS GUIDEBOOK (Three Rivers Press).

If you're looking for a cash infusion for your high-growth company, angel financing might be for you. (See related story, "What's an Angel Investor?")

I asked Susan Preston, author of Angel Financing for Entrepreneurs and an angel herself, to explain what an angel wants to see before making an investment. Here's her list:

• A solid potential for return. Angels want to know how your company will make money, when it will turn profitable, and when they can expect a return on their investment. You'll need to back up those promises of profitability with financial documents that include an income statement (also referred to as a profit/loss statement), a balance sheet and cash flow statements.

• A good plan for the cash. Investors want to make sure their money will be spent wisely. If you've founded, say, a consumer product company, you'll need to show how the money will be used to design, develop and distribute your product. And emphasize your thriftiness: angels don't want to see the money being used for big salaries or fancy office space.

• A winning attitude. Get fired up. Angels want to see passion; they want to see you're committed to your concept and company and that you'll stay the course when obstacles arise. Aside from enthusiasm, you must be able to clearly articulate your company's mission—and how you'll make that dream a reality.

• A seasoned team. Angels want to see a strong management team that's capable, experienced in their industry and, more important, open to suggestions and opinions. "If I don't think that a CEO or founder is coachable, I won't invest," Preston says. "Someone who comes in and says 'I know all the answers' is the kind of person who is doomed to failure."

• A competitive edge. How are customers responding to your product or service? An angel will want to know that you can capture market share quickly and beat out competitors as you ramp up. If your product or service is fairly unique, an angel will want to see you've secured the patents, copyrights or trademarks to protect your intellectual property.

• A well-defined exit strategy. Investors will want to know exactly how you plan to make them money—and just saying "IPO" or "acquisition" might not be enough. Research how other companies in your industry have returned profits to investors. Identify potential suitors for your business. "It's a homework point that they need to have done," Preston says.