Prior to seeking angel investment, it is important that your business is at the right growth threshold and that you are ready for the responsibility of having outside investors. Below is a checklist that will help you to decide if and when you should seek an angel investment.
The CAC invest between EUR 10 000 and EUR 200 000. We are looking for companies that have an established proof of concept and are poised for growth. We tend to avoid investments that require significant capital and regulatory approval in order to get their product to market.
CEO Angels Club looks for early stage, normally post-accelerator startups that are highly scalable and that can show us how the company will get to break-even or to a clear meaningful mile stone (e.g.Seed or Series A.Funding) within 12-24 months on the basis of our one-time investment. This typically means smallish teams (2 to 5 people), with serious domain expertise and a product that is either currently in the market or already in beta.
While the merits of each investment will vary, we evaluate your venture according to the following criteria:
Is your management team experienced, driven, coachable and willing to cede some control and decision-making authority to outside investors? We look for teams of high-quality entrepreneurs with a track record of leadership and performance – either in the company’s specific industry or in prior entrepreneurial ventures. We also look at your team’s passion for and commitment to the new business idea, and your ability to inspire confidence among future stakeholders, including employees, potential customers, and investors. As we will be working together as partners, your team’s credibility is essential. In addition, your team must be open to and comfortable with receiving input provided by angel investors.
We invest in solutions that address major problems for significantly large addressable target markets. Do you have an identifiable market segment? Is there a demonstrable and significant demand for your solution? Is the projected spending in your product category large and growing?
Do you plan to achieve widespread market penetration for your products and services? How will you do this as efficiently as possible? Will you create an internal, direct sales team, or will you rely on external channel partners?
We are looking for well thought out, logical and reasonable revenue plans. Most financial plans do not achieve their revenue projections, so we will evaluate plans under the assumption of a revenue shortfall. Consequently, gross margin and cash positions are critical variables to manage.
We invest in pre-money valuations that are typically below EUR 1 million. The majority of our deal valuations will be well bellow. A key reason for this is that it gives the investor the potential for a nice return at a modest exit valuation. It also allows for some protection against future round dilution. It is also in the entrepreneur’s best interest to have the valuations of subsequent rounds increasing and avoiding bad will and anti-dilution ratchets.
Funds must be used to accelerate your company’s achievement of key milestones that increase the company’s value. We often fund activities that include research and product development, building a sales and marketing infrastructure and hiring key executives.
We look for companies that can grow quickly and manage the scale necessary to succeed. Your company must demonstrate a plan to generate significant profits beyond the initial product idea. Do you have a strategy to achieve multiple sources of revenue?
Have you identified potential competitors? Do you understand your company’s differentiation points? Will true barriers to entry help your company to maintain a competitive advantage? Your company should have some proprietary features that distinguish you from potential competitors or provide barriers to entry that prevent other companies from capturing your customers with a similar offering. Attributes that convey competitive advantage include intellectual property protection, exclusive licenses, exclusive marketing and distribution relationships, strong brands, scarce human resources (i.e. knowledge and skills), and access to scarce raw materials. Have you protected your intellectual property? Have you performed an exhaustive search to be sure that you are not infringing on patents or trademarks held by others?
Our group members are all individual investors with significant executive experience in a variety of fields. One of the benefits of working with angel investors is the active coaching and contact network that such investors can provide. As such, there must be a fit between members of our group and your idea, and your team.
We prefer to invest in first-of-a-kind new ideas, rather than incremental enhancements to common products and services. Is this a nice-to-have, or a need-to-have product or service? However, we approach highly complex, esoteric technologies with caution. The concept behind the technology must be proven and verifiable. Further, we avoid science projects that don’t demonstrate a clear path to commercialization. Any breakthrough innovation must be accompanied by a strong business plan.
Our members typically seek returns of ten to twenty times their initial investment, depending on the riskiness of the plan. This level of return on investment is essential due to the high risk and likelihood of failure among early stage ventures. Thus, a clearly articulated exit strategy – how angel investors will extract such returns – is essential. For example, do you plan to sell the company to an established corporation in your industry? Or will your exit be through subsequent rounds of financing – venture capital or the public markets? Angel investors are not just interested in the strategy you select, but more importantly in the how – the operational strategy that shows specific steps you will take to achieve the exit.