Entrepreneur: What do Angel investors look for?

I often have the chance to interact with entrepreneurs, gulping down some of Seattle’s finest coffees. Its great talking to entrepreneurs, to see the passion, the energy, the great ideas, and the desire to change the world. Like most entrepreneurs, they also have the need to raise money from Angel investors. As I am both an entrepreneur and an Angel investor, I am often asked, what do Angel investors look for? What do I need to explain to a potential Angel investor?

I have a very simple and short way that I explain this to an entrepreneur. If I am investing my money into a start-up, I would like to see a return. For me to see a return, means that the start-up needs to be able to make money. To make money means that the start has a value prop that resonates with a customer. A value prop that resonates with a customer, means that the start-up is solving a problem or meeting a need that the customer has. If the start-up is solving a problem or meeting a need, it means they have researched the space and designed a solution.

This may be an over simplification, but it tells the entrepreneur what to focus on. It does not mean that if you have all those things that an Angel will invest. There are other things to think about as well – some things that raise flags for me.

Over focus on the technology is a flag. Don’t go deep on the technology, unless asked. Entrepreneurs with an engineering background, sometimes fall into the trap of wanting to over explain the technology (I know I have). However, in most cases, technology does not sell itself. I will often ask an entrepreneur to think back to a recent purchase they had and whether they bought that just because of the technology or because they had a need or problem to be solved? I recently put a cold-air intake system into my truck. Did I buy this because its cool and different way to do an air-filer? No, I bought it for better efficiency. That is the need that I have. It was way more expensive than a normal air filter, so it better be more than just cool. Sure, some of us will buy gadgets because we think its cool technology, but in general, when you think about why you buy things, it usually comes down to meeting a need or solving a problem that you have.

Inability to take feedback is another flag. While I may just be investing, and suggesting ideas or asking specific questions, this tells me how the entrepreneur will listen to customer, mentors, employees, and potentially VC’s. This doesn't mean that what I suggest to them is right, its how they deal with it that is the important piece.

To all your entrepreneurs out there, building great technology, make sure its solving real problems or meeting real needs. If its not, it will be hard to sell the product, and hard to get a return back to Angel investors.