Choose your angel: Learn how they invest and what motivates them

Not all angel investors, and not all angel groups, are created equal. Some have built reputations for adding phenomenal value, being staunch allies of founders as startups scale and helping them source expertise or resources through their networks.

However, you also have some who are known for being cap-table nightmares, meddling, setting unrealistic requests or being downright unreachable when needed.

For many entrepreneurs, angel investors can play a key role regardless of whether they’re good or bad investors. In the current fundraising environment, the importance of angels has only grown. While terms in the first half of 2022 have remained founder-friendly, seed-stage valuations are reportedly declining, and some investors are taking longer to make decisions while expecting higher levels of traction at every stage of financing.

Angels are increasingly everywhere

One kernel of optimism for founders to bear in mind is that the state of “earliest-stage” capital has improved significantly over the last decade, with more angel investors and more venture funds than ever before. The Angel Capital Association reports 278 angel groups as members, with dozens more North American groups operating outside of the association (that’s over double the number of angel groups a decade ago). Europe’s investment community has similarly grown and matured, with the European Business Angel Network reporting over 60 angel groups across 41 countries as members.

Beyond making a financial return, many angels have a second or third motivator driving them to invest in startups.

While angel groups are easily identified due to public websites and formal investment processes, they actually comprise just a small fraction of the total estimated number of active angel investors. Many angels go it alone or invest with a small roster of friends outside of any formal group. The Center for Venture Research estimates there were 363,460 active U.S. angels in 2021 investing across 69,000 startups, up 2.9x from the 124,900 active angels reported in 2011.

Despite this growth, founders need to think carefully about their fundraising strategies and hunt for any investor insights or edges they can find in order to maximize their company’s potential. More angels also means more complexity, and entrepreneurs must navigate this complexity and determine which investors are actually worth the time and money.

How angels think: Determine their secondary motivator

Virtually all angel investors want to make money. While many of the best angels mentally write off their investment once they make it (recognizing the odds are long that they will ever see a return), they still hope to see their investment result in success. But beyond making a financial return, many angels have a second or third motivator driving them to invest in startups. After all, there are plenty of easier and more liquid ways to deploy capital than into startups.

As a founder, identifying these other motivators can help you better resonate with a prospective investor. Understanding an angel’s motivations can also help you assess whether you want that prospective investor to be a part of your company for years to come.

So what are the most common angel motivations, besides making money?

Pay-it-forward

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