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when business angels say "no"

For early-stage business projects there is no better source of funding than Angel investors. Angel investors review thousands of business start-up applications every year with only a small part of enterprises actually receiving the required financing. There are a few rules that may influence an angel investor’s decision in rejecting an investment opportunity:


Trust intuition Deciding on a particular investment, experienced angel investors will use their instinct to make the final decision. Credibility of the proposed business plan, the entrepreneur’s presentation, due diligence findings, etc are the most influencing I making their decision. Any doubt of an angel investor regarding a particular investment will mean a definite rejection of the application.


No underfunding Most entrepreneurs usually tend to underestimate the finances required for their businesses and request an extraordinarily “shallow” amount of capital from investors. Most angels understand that most of these “underfunded” companies will eventually generate very little or no return at all. Such type of a company will most likely seek additional funding to reinstate their losses, while angel investors usually prefer to stay away from companies that may require these follow-on investments. Most angel investors believe that an underfunded company is worse than providing no funding at all.


Always underestimate an entrepreneur’s credibility Entrepreneurs also usually tend to assure their investors that their company will be successful, despite its failure in the end. It is very important for business owners to demonstrate to investors that their company will succeed in both short and long terms and that every conceivable aspect that may happen during the investment span will be worked out. In addition, a strong management team should also be implemented. Angels should always underestimate an entrepreneur’s credibility until they have demonstrated competence.


Angel teamwork advantage Angel investors are usually working either alone and have the knowledge and skills to make large investments with confidence or work in groups, where their investments are highly dependent upon what other angels invest in. When angels work together, they are able to learn and process opportunities faster than when working alone, that's why their conformist ways may be beneficial.


The importance of rule-making Most experienced angels will abide by certain rules they make when investing. They are keen on how much they can invest in each year, which industry sectors to focus on, and the amount of expected return. Regardless of how fantastic an entrepreneur’s pitch is or how promising an investment may appear angels should always avoid temptation and abide to their set rules and perspectives.


Experience It is not a secret for anyone that most angel investors were once entrepreneurs themselves, and the best criteria of their success is their previous business record. An experienced angel has detailed knowledge on how to launch, lead, and sell a company as well as experience with learning from past mistakes. An angel investor will typically select investments according to their area of experience and keep away from investments that were proven to be unsuccessful before.

There are certain characteristics that make an investment opportunity appealing to angel investors, including a well-trained, experienced management team, the size and timing of the market, and the unique quality of goods and services a company offers. As simple as these requirements may be, the majority of funding requests made by entrepreneurs will be rejected.

08 April 2011
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30 September 2016
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