Five things Angel investors are looking for
Jeremy Middleton co-founded HomeServe PLC and now makes Angel investments through his company, Middleton Enterprises. Jeremy explains what investors are looking for in businesses.
There are no hard and fast rules for what Angel investors look for, we’re all different and our criteria doesn’t just vary from person to person, but from investment to investment, depending on circumstances. However, it is possible to put yourself in our position and consider what our criteria might be.
The first question I ask is: Is it a big idea? Can it have the scale to have an impact on our portfolio? Is it a business that could offer a significant return on our investment if it is successful? From our perspective there is no point spending lots of effort on something that won’t really move the needle.
This means we’re looking for proven recurring revenues. This does not mean a company has to be profitable, but it does have to show it can make money. What we’re looking for here is evidence of a viable business that, with the right investment and development, can become an exciting, profitable business.
This might sound blindingly obvious, but your idea must also be better than everything else on the market and you have to be very clear what your competitive edge is. It should meet an unmet need in the marketplace. Investors are looking for innovation, not ‘me too’ products jumping on someone else’s bandwagon.
Getting your unique selling point across is important for two reasons, investors are inundated with pitches, so only those that show us they are worthwhile will get our attention; but we’re also looking for a business that can make an impression in the marketplace. If something appears too complex or convoluted for your target customers to understand, chances are a business angel won’t help you take it to them.
Angel investors know that funding a business is not a one way transaction. While banks and venture capital firms might look at an investment prospect purely in terms of returns, angels are often a little more involved. Most of us have grown our own businesses and have experience we’re eager to share. I am more likely to back a company that I can support with more than just cash. When approaching investors it is worthwhile taking this into account, and speaking to those that can mentor or give you less tangible support and would be personally interested in doing so.
I have a background in marketing, property and utilities, so it won’t surprise you that some of my investments are in utility-related companies, along with property and financial services, and the support I offer sometimes takes the form of marketing advice. I personally am not likely to invest in businesses where I have little expertise.
While a good idea is absolutely vital, a business with just an idea is nothing without the ability to deliver it. In terms of delivery, we’re looking for a credible and rounded management team. Credible in the sense that they have the product, market and business knowledge to deliver what they promise, and rounded in terms of the balances of personalities and skills.
Some investors may even go as far as analysing, formally or informally, the personalities of the key people in the businesses they are considering, to see how well they will work together. The main competencies you must display are marketing, finance and leadership.
We don’t just look for a team that has the capability to manage the business in its current state, but one with the potential to develop with the company. Some business partners start up together and exit together, some even retire together, but many leave the company at different times. We will want to know your exit strategy, and we will need to know that the core individuals aren’t going to fall out or burn out.
When looking at the team running a business, investors know that there are times in business that sheer bloody-mindedness and a determination to succeed are your greatest assets. This is the ability to keep working on the business model. If something isn't working then change it, and keep changing things until it does work. Resilience in times of adversity is an attribute that will be acknowledged and respected, as will the ability to understand and manage a constant state of change.
Investors receive a lot of ideas and applications, and a lot of them look very good, but nine out of ten of them will fall over, which means there is a nine in ten chance we will lose our money if we’re not extremely selective. You need to show us that you have a market leading idea with a realistic prospect of a strong return on investment, and that you can communicate its unique selling points to us and your target customers. We need to know that your business fits within our comfort zone and portfolio, and that your team is well rounded and can handle the challenges of today and tomorrow. Finally, remember that a direct approach from someone you know or an introduction from a trusted third party carries a lot of weight.
ISSUED ON BEHALF OF JEREMY MIDDLETON
CONTACT: Chris Rowell on 01325 363436
Notes to Editors:
Mr Middleton is a self-made businessman and philanthropist based in the North East. He was a Board Member of the North East Local Enterprise Partnership (LEP) between 2011 and 2016, and was Chairman of the North East LEP Investment Fund.
Mr Middleton has carried out a range of sponsored fundraising for a variety of charities which to date include the North Pole, Mount Kilimanjaro, Mont Blanc, The Haute Route, Mount McKinley, Mount Elbrus and a cycle ride from London to Paris.
In 2012 Jeremy was awarded a CBE in the Queen's Birthday Honours List for Services to Politics and Charities.« Back