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Angel Investors and Their Criteria for an Investment

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. 

It is important to first understand that angel investors and VCs all share one thing in common: the need for a return on their investment. This is not philanthropy. Even Impact Investors who may accept lower rates of return, still need that ROI.

After a founder understands this, one must realize that there are angel investors who specialize in an industry while others are “agnostic” meaning they are open to all industries.  Do your homework in advance of contacting investors.

What all investors rate highest in evaluating a deal is the strength of the team.

  • Does the management team have the relevant skills to be successful?
  • The team should bring diverse skill sets to the business.
  • After funding, who would be the first hires to help round out the team?
  • If not the management team, are there mentors or an advisory board to help guide the management team.
  • The gold star is a founder or early team member that has been through the business stages from concept to an exit.
  • Many investors like to see some “skin in the game”. Have the founders invested in their own startup?
  • Passion for their concept
  • Are the founders coachable? Will they listen to others and sift through their advice for better ways to build the company?

A great team can carry a good concept to success. A dysfunctional team can kill the best business models.

Back to the ROI…

Is there an exit in the plan? The business can be very successful but without an exit there is generally no ROI. Ideally, investors would like to see an exit (acquisition or an IPO for example) in 5 to 7 years. There are other ways to structure an exit. This could be a form of revenue sharing or a guaranteed founder buy out of the investors.

 

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.”  

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