How do i evaluate a potential investment opportunity with an angel investor?

Source of opportunity Keep in mind that most angel investors are looking for a competent entrepreneur as much, if not more so, than a home run. There are similarities, but the overall objective is different. With impact investors, the focus is not on conditions that maximize growth, but on conditions that allow the company to maximize impact. As a result, it's less about acquiring customers than it is about accessing the underserved ones you're trying to reach.

So size is still a factor, but it has much more to do with solution interaction, impact and access. You must find a market where you can have the desired impact in the most efficient way that is aligned with your objectives. It is likely that the company will only be acquired with a multiple of revenues or EBITDA less than 10 times. The almost total lack of liquidity before departure is due to customers' purchasing priorities.

You can talk all you want about the size of your potential market you can target, but at the end of the day, your real market consists exclusively of the people for whom your solution is a top purchasing priority, plus any additional customers you can cost-effectively convince to make it one of the top purchasing priorities. As I said in my Q%26A on the importance of due diligence, it's very easy and tempting to confuse the enthusiasm of the early adopters with the true attraction of the market. It has been said that “anyone can keep the first 10% of a market” and Crossing the Chasm, by Geoffrey Moore, defends that proposal. The key to growing a company is to find a large enough market of willing buyers that can be accessed affordably (relative to its lifetime value).

The product may be good and there may be a lot of people who buy it, but unfortunately a company's true market is limited to those customers for whom that purchase is a weak point and a top purchasing priority. See our article on oxygen, aspirin %26 Jewelry. Often, a marginal improvement over a marginal cost is not enough to drive the buying behavior of all users, except for the first to adopt it. Therefore, the key is to recognize when you are observing what is sometimes referred to as false traction and to investigate a little more.

There's nothing like talking to real and potential customers before making an investment in these situations. What is the outlook for potential buyers? Angel investors trust their network and often use it as the first step in evaluating any potential investment. Searching for opportunities through a network usually offers investors higher quality opportunities, which often reduces the time spent on the early stages of evaluating the transaction. This is not to say that the investor will not carry out their due diligence in taking advantage of the opportunity.

An opportunity from the network can facilitate a faster evaluation process, since trust in the network can serve as the first stage of evaluation. Usually, an angel investor takes a practical approach to investing and will potentially act as a mentor to the chosen entrepreneur. Many impact investors can work in smaller markets than traditional investors because they may be willing to accept favorable returns or longer terms. Rob Wiltbank analyzed the level of due diligence performed by angel investors and found that the number of hours of due diligence performed in a company was one of the key factors in successful angel investment results.

A final observation is that, whatever the market, the investor syndicate must include active investors with extensive experience in some aspect of the market. .