Angel investors typically want to see a very strong return on their investment when they are looking at a prospective business. Generally, you can anticipate that your funding source is going to want to receive a 20% to 30% annualized return on their small business investment. As such, you should closely focus on these matters when you put together documentation for a prospective capital source. Your attorney should, of course, review any documentation that you provide to a third party due to the fact that certain risk disclosures may or may not be required. Only a lawyer can make the appropriate determination as to whether or not these risk issues need to be discussed in your business plan.
Additionally, one of the things that angel investors are looking for in an investment is economic stability. For instance, a medical practice is a far more stable investment than a new high end clothing store. It should be noted that a business, like a medical practice, will not need to sell as much equity as a high risk business. In this example, an investor may only want a 10% to 15% per year return on their investment. A risk versus return analysis should always be provided to a potential outside funding source. If you do not know how to properly develop this type of analysis then you should have your certified public accountant put together this type of documentation on your behalf.
Within your needed angel investor business plan, you should create chart that showcases the milestones that are related to your business and how you intend to expand the company’s operations during its next five years of operation as this is an extremely important aspect of what a private funding source wants to see in an investment.
Most angel investors have an investment time frame approximately three years to seven years although this is not always the case especially if you run a very low risk business. Some angel investors want to see an investment that they can count on, as almost as if it was an annuity, in perpetuity.
As an alternative to seeking equity investors you may want to look into specialized investment programs that are offered by the federal government. Within your business plan, you should always provide a funding source was a complete understanding of how you intend to use these funds. When you develop a business plan in regards to your venture, you should heavily focus on what an angel investor wants to see as it relates to their return on investment.