Angel Investing 101
For startups, financing can be challenging, and often the biggest barrier. Each month we’re focusing on a different financing option in Minnesota for startups and featuring experts in the field.
An angel network is a group of investors who make individual investment decisions. In the case of Gopher Angels, our accredited investors collaborate on any deals of interest. There is a disciplined approach to this process and we have an administrative director who manages the due diligence.
An angel fund requires a minimum investment by angels of X dollars to go into a pool or fund to be managed by an individual or by a committee who deploys the dollars.
Seeking and using angel dollars should come after funding by friends, family, and self financing.
Angels generally invest in seed sage or early stage companies. By our definition seed stage is conceptual with a business plan supported by research to validate the business model.
Early stage is further along. It has a minimum viable product/prototype, a patent or being tested in the market with potential customers. The business can be pre-revenue but with some proof of concept. Better yet, there will be some level of revenue with paying customers.
While each fund/network/individual have their own criteria, here are some highlights:
- An exit such as an acquisition or an IPO where there is a return on investment within 5 to 7 years.
- Angels look for companies that can scale with a significant market potential.
- A team with relevant experience. This can be management but also can include a strong board of advisors.
So when angel investors pass on what could be a very successful business it is because there may not be an exit in sight, the company is not tapping into a large market potential or concern that the team does not have the skills to execute.
- Rob Wiltbank, “Investment Practices and Outcomes of Informal Venture Investors”
- Guy Kawasaki, The Art of the Start
- Brad Feld, Venture Deals
David Russick is an established entrepreneur and angel investor. Russick is co-founder, Managing Director, and Board Member of Gopher Angels. Russick was also founder and CEO of TUBS, Inc., a family owned waste and recycling business operating in the Twin Cities, Denver and Cleveland. In addition, Russick serves on the Board of Advisors for the Dakota Venture Group. Russick has been featured in the “Star Tribune,” “Twin Cities Business,” and the “Minneapolis St. Paul Business Journal.” “Twin Cities Business” named him a “2014 People to Know – Finance.”