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These 3 Things Matter Most To Angel Investors

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A survey released this week shows three things matter most to angel investors, in addition to ROI (return on investment). The research was conducted by Propel(x), an online investment platform connecting science and technology startups with angel investors, in collaboration with Breakout Labs, the MIT Alumni Angels of Northern California, and the Innovation Node – Los Angeles.

Angel investors were asked about a number of factors related to what sectors and kinds of companies they fund and why. These three things were found to be the top reasons angel investors do or don’t back a company:

-A-teams - nearly 75 percent cited management teams as the number one reason for investing.

-Keep it simple stupid - half of those surveyed said they often don’t invest in technology they don’t understand.

-Save the world – almost one-third of angel investors polled said their investment decisions are driven by technology solving some of the world’s biggest challenges

The study explored other aspects of what drives angel investors. Some of the graphs are shown below. I spoke with Swati Chaturvedi, CEO of Propel(x) and co-founder of the MIT Alumni Angel Investors group for her take on the results.

Chaturvedi: This validated a long-held belief I’ve had about angel investors; that solving some of the world’s biggest challenges is a major motivator for them. Angel investors are investing personal wealth, and many want to leave a legacy by helping solve some of the biggest problems on the planet through science and technology.

When pitching angel investors, founders should emphasize the impact of a solution besides potential returns to investors. It’s not only about the ‘what,’ but the ‘so what?’

Chaturvedi: The results of our survey dispel a common misconception that angel investors are driven by a follow-the-leader mentality. Our data shows that access to both management and independent industry experts is key to facilitating angel investing, especially when it comes to complex science and deep technology startups whose innovations have world-changing potential.

When pitching to potential angel investors, highlight the management team and come up with ways to help investors get to know them, since that influences angel investment decisions most.

Chaturvedi: I was pleased to see how high the interest in science and technology startups is overall, and its good news that only 1.32% of those who haven’t invested are not interested in science and tech companies. The disconnect often comes down to a lack of understanding the technology well enough to invest -- helping investors overcome this information or the knowledge gap is crucial to facilitating investing.

This is a biggie for science startup founders. Make sure you translate your cutting edge innovation in ways that are easy to understand. Help investors understand the innovative leap your business can deliver and the impact it could have.

Energy is in the air. This sector has been dormant, but we’re seeing an increased interest and investment in cleantech with almost half of the angels surveyed having invested already. This tells us to expect cleantech startups coming down the line for VC funding. We are already seeing movements in this direction with new initiatives like the Breakthrough Energy Coalition championed by Bill Gates

It’s a good time to be a science and technology startup - especially in the areas of life sciences and cleantech. We are seeing global icons support these areas - from Bill Gates in Energy, Yuri Milner in Space, and many more.

The rest of the results can be found here.

Click here to read more of my stories about entrepreneurship.