What Are Angel Investors Looking For? The Six Key Motivations of Angel Investors (#3)
Welcome to the third installment of “The Six Key Motivations of Angel Investors #3”
So what are these articles all about?
One of the top ten most all time popular questions relating to Angel investors (aside from “Where the heck can I find them…”) is “What are angel investors looking for?” or “What are the main motivations of angel investors?”
Its just too easy and frankly a real missed opportunity just to say or think “to make lots of dough…”
If we consider that Angel Investors are accredited investors then making more dough is unlikely to be at the top of their motivation list and having had my own share of angel investors for my businesses, the profit motive was high up there but certainly not the only motivation and rarely at the top of that list.
I put forward that aside from financial return, contribution was also a key motivator for many angel investors. I personally subscribe to the thinking that once you are ‘secure’ a different set of needs kick in. So, aside from Contribution what do I believe is the 3rd Motive for Angel Investors?
Consider the accredited investor – what are they?
An accredited investor according to Rule 501 of Regulation D of the Securities Act of 1933 is a few things but the important sentences for most entrepreneurs are:
- a natural person who has individual net worth, or joint net worth with the person’s spouse, that exceeds $1 million at the time of the purchase;
- a natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year;
Stepping outside of the legal verbiage – accredited investors are High Net Worth individuals, according to the World Wealth report written by Cap Gemini & Merrill Lynch, there are over 10 million people considered High Net Worth and there’s also a group out there in the Ultra High Net Worth Category who’s assets are worth over $30M (the UHNW definition).
Now I’ve seen all types of data which suggest how many accredited investors there are, how they are spread across the globe, the growth rates of their numbers and so on – but I have seen no studies that say how they made their money.
Given I’m just guessing here – I’m going to think about those people I know who fall within their ranks and think through how they became accredited investors – and they fall into a few categories as follows:
1) They made the money from starting companies
2) They are doctors, lawyers, surgeons or some other lucrative profession or
3) They inherited the money
So why is this all relevant?
Well, it leads me into what I believe is the third motivation of angel investors and it resonates strongly with some of the angels that have invested in my businesses.
Key Angel Investor Motivation #3 is the “Vicarious thrill”.
For those people who made their money starting their own businesses – the days when they can feel that first time thrill of seeing their startup baby taking their first steps have passed. If they’ve started and built companies – that deflowering of their startup virginity has already occurred – they cannot personnaly experience that unique thrill again. But they can invest in others and tap into that breath sucking in exhilaration of watching another entrepreneur crest that challenging hill…
For those that made their high net worth as Doctors or Dentist – investing in a young entrepreneur and startup allows them to get a real insight into a different set of experiences, to play a part in something outside of their current daily lives – why did angels start by investing in Broadway shows – the majority of which flopped? So they could do something exciting, so they could get their “vicarious thrill’.
I have a strong mental picture of one of my angel investors who had built one of the most popular pizza chains in Europe only to sell out for more cash than he can ever spend…in my view he invested in my first company because he wanted to make a contribution and he really enjoyed being a part of starting and growing a business – he went on to create more businesses of his own, to buy small failing businesses to turn them around, but he is was also a big supporter of entrepreneurs. In my opinion, he enjoyed the experience of the startup either directly or once removed.
Financial return was NOT the main motivator.
Consider motive number 3 when hunting for your angel, when locking them in and working with them ongoing. Critical to engage them are the ups and the downs of your business – the challenges just as much as the successes – at the end of the day, and this is hyper important stuff…
…one of the BEST things about starting a business and stepping outside of corporate life is the ability to be true to yourself and your business. Don’t make the mistake of letting your need for the money mean that you choose the wrong angel investors. You are not looking to exchange that angel investor cash for a new boss…if you want a boss, stay where you are and don’t start a business.
If you’ve already raised cash from angel investors I’d really appreciate hearing about your experiences – other readers would find it helpful too…if you are about to raise cash, where are you going to look? How are you going to find your angels?
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Here’s to your startup success!
Ps: For those who are committed to raising funds for their business – this might help…