Angel Investor Expectations and Experiences

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Each individual will have his or her own reasons for becoming an angel investor and these reasons help shape their expectations. Regardless why we choose to invest, each angel investor will have differing views as to what to expect when angel investing and what will constitute a “good” investment experience.  

In a recent article on Forbes.com, Marianne Hudson makes the Case for Being an Angel Investor http://bit.ly/2rc2AbR. In her article she starts by considering the financial returns most investors are eager to realize.  A study found that the overall return on 1,100 plus angel exits was 2.6 times the money in 3.5 years, or about 27% gross Internal Rate of Return.  Not bad compared to other types of equity investments. But then she goes onto list the myriad personal benefits to angel investing, including, the social aspects of meeting interesting entrepreneurs, the emotional impact of supporting what you care about, feeling as if you’re “doing good” with your investment decisions and finally the draw of entrepreneurship without the responsibility, “As angel investors, we know that the responsibility for a company’s success lies with the CEO and we can enjoy being involved with the company without having the responsibility of leading “in the middle” to get to a great exit.”

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In a similar article, found on the Balance.com http://bit.ly/2rjSYvE, Susan Ward lists the 7 things Angel Investors are looking for. These can be further condensed to a focus on return on investment, the expectation of an opportunity to be actively involved in the development of the company, and realizing a viable exit strategy.

Drawing from these articles we can conclude the following 3 expectations most individuals share when considering adding angel investments to their portfolio:

  • Profit: All Angel Investors are expecting a ROI. As an angel investor you should be prepared to lose your investment and able to weather that loss in stride. However, angel investing is first and foremost an opportunity to realize financial gain.
  • Involvement: Most angel investors want to help shape the developing investee company through mentorship. This consulting capacity is also valuable to the new entrepreneur, because they have access to the invaluable expertise of someone with years of experience in the business world.
  • Communication: Almost all angel investors will expect excellent communication about the progress of the business. This can be achieved through mentoring, consultancy or updates. Keeping open communication is a key part of the angel investing experience and benefits both the founders and the funders of a growing business. In the end it seems most angel investors have the same set of expectations when choosing to invest in early and growth stage companies, and it is a sound practice to be forthright and honest about these expectations in order to ensure the best angel investment experience.