Following our article on the business angels to avoid – these 7 questions will tell you (nearly) all you need to know about your potential business angel – and using this list will save you hours of time spent speaking to the wrong business angel…
Questions to ask your potential business angel
1. What have you invested in during the last 12 months? Find out, first and foremost, whether they have invested before as a business angel or not. Many business angels are ‘first timers’ and may get nervous or cold feet. You would expect to treat a business angel PRO differently from a business angel novice.
2. What did you invest in prior to that? Does their previous investing experience correlate with what you are looking for? For instance, if they invested £500k into residential property (which pays a rental income and perhaps some capital growth) will they want to fund your IPO headed software company on a 5 year – nil-dividend – journey?
3. How are your current investments performing? This question should tell you if the business angel has had success with his existing investments or not. If not, find out if the people fit was right. Be wary of ‘it’s the market’ excuses – (see rule 3 of my book 100 Rules for Entrepreneurs) as this can hide all sorts of interesting things.
4. How much money have you put aside for business angel investing?
You do need to ask your angel about the depth of his pockets. Your question needs to be polite but firm and aimed at understanding the level of investment he is able to make – and, whether or not he has funds for follow on investment. Too many novice business angels stretch themselves to make their early investments and find that when the business needs extra cash that they are unable to deliver it and if the VC funding markets are weak then a good business can quickly fall into trouble.
In general, business angels put aside 10% of their net worth into investing in early stage businesses. If they are aiming to invest more than this then the remainder of the money might be focussed on revenue (and profit) generating businesses – which might exclude your pure startup or IPO headed strategy?
5. How many successful business angel investment exits have you achieved? You’ll want to know if your angel has managed to exit his investments – and if so, how. Do you like the sound of the process or do his investments seem to get bogged down?
6. How much time do you spend on those businesses? Find out if your business angel likes to spend time in the business to ensure his money is carefully managed or if he likes to roll his sleeves up and take an active role developing and growing the business? Either type of business angel has its place – but not every type of angel will be right for your business.
7. And how much spare time do you still have? It may be that your business angel doesn’t have much time left and hence will provide support mainly by phone – you’ll want to know this early on.
And lastly, a (long) question for the entrepreneur (which any decent business angel will ask)….
“Are you willing to work hard, treat my money as if it were your own (or better) and are you willing to reward my risk taking with a sensible equity share?”
If you are talking to business angels and asking hard questions, just ensure that you are ready to handle the tough questions yourself.