Investing / Pitches / Startups

5 traits angel investors look for in startups

A mock negotiation revealed some useful tips.

Over 700 investors attended the 2016 ACA Summit. (Photo by Roberto Torres)

With over 700 investors attending, most startup founders would kill to be a fly in the wall at the 2016 Angel Capital Association’s Summit, being held at the Pennsylvania Convention Center from Monday to Wednesday.
The event’s programming involves dozens of sessions, keynote lectures and roundtables, and will wrap up on Wednesday with a keynote presentation from Howard Morgan, the longtime managing partner of Philly-based venture firm First Round Capital.
On Tuesday morning, crashed an event featuring seasoned investors titled “The Art of the Deal” (no, not that one), targeted at giving emerging angels tools for identifying a worthy investment and following through on a fair negotiation for both sides.

The panel featured Elizabeth Sigety of Delaware Crossing Investor GroupWayne Kimmel of Seventy Six Capital and Loren Danzis of Delaware Crossing Investor Group and Fox Rothschild. The investors put on a mock negotiation between a startup founder (portrayed by Danzis) and an angel investor (played by Kimmel), with Sigety as a moderator.
Her are a few key takeaways from what angel investors are looking for in a company that is worth their while (and dough).

1. Notable founder profile

“Entrepreneurs need to elevate their personal profiles,” Danzis said. “We’re interested in knowing what the founder is all about and how much they have invested in this.”
Kimmel notes that a founder needs to show drive and passion in order to seal the deal. “They need to show that they would do anything to be successful: run through walls, never take no for an answer,” he said.

2. Solid team chemistry

Besides showing commitment for the company and the knowledge to bring value, investors look for smooth and risk-free interaction among members of the startup team, to ensure longterm stability.
In the mock pitch, Danzis said the cofounder was his wife, to which Kimmel showed some resistance. “For angel investors, that situation can sometimes be a problem,” Kimmel said. “You need to convince me how you two are going to work together on this.”

3. Awareness of competition

“You’ll hear often from startup companies that their product doesn’t face any competition,” Sigety said. “Make sure you invest in someone who truly understands the market they’re trying to access.”
According to the investor and attorney, an honest assessment of the rivals that a company will have to measure itself against is a boost of confidence for investors.

4. Skin in the game

The investors gave the aspiring angels a word of advice to identify worthy investments: a tried and true measure of a founder’s commitment to an idea is their willingness to put up part of the cash or assets.
According to Kimmel, personal debt or equity is a sign of trust in the potential worth of an idea.

5. Willingness to compromise

While discussing the terms of the deal, a startup seeking to have access to cash must be willing to offer some say in decision making to the initial investors. In turn, angels must compromise to reach a fair balance.
“All founders want to keep as much control as they can,” Kimmel said. “As investors, we must understand that it’s the founder’s company. We never want to take the entrepreneurial spirit out of the founding team and, frankly, that means making sure they keep control.”

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