Most angel investors will want to know the rationale supporting your claims. It’s extremely important that the entrepreneur demonstrates a clear understanding of the size and scope of the industry in which they are in.
How do your projections compare with the yearly revenues and overall growth forecasted by the industry experts? The industry experience of your management team has a significant influence on the angel investor’s perception of the viability of your business proposal. It is very important to check for contradictions in your business proposal that could be challenged. All angel investors will pay attention when you are talking numbers so do your research and be prepared.
Things to consider when making projections
For any new company the amount of market share your company will capture each year is obviously highly speculative. Don’t allow your enthusiasm to unduly influence your revenue projections. You will need to do research to determine the overall size of your market and the potential your target market represents. Experienced angel investors will thoroughly check your numbers and depending on their findings, confirm whether or not you have a solid understanding of your business and actually know what you are doing.
The importance of this information will become obvious when you are being questioned by the angel investor on where this number came from and how you expect to capture your projected market share.
Market growth information can be expressed in a number of different ways: text, graphs, charts, etc.
Here are two examples:
Worldwide Software Spending:
$257 Billion in 2007 (19% of Angel investments)
Projected to reach:
$327 Billion by 2010
Or how about being more specific with your numbers?
Software Industry Growth pattern
What research have you done and what numbers support your claim?
When going after angel investment, angel investors will want to see high growth and aggressive numbers. Pursuing growth forecasts of 36% – 50% per year might not happen in every industry or with fully mature companies, but with start up businesses, you are going to need to shoot for these in order to attract serious interest from angel investors.
Industry counts when it comes to calculating your yearly growth projections and certain industries will garner more interest to angel investors than others. The most interest has been in software, followed closely by healthcare, biotech, business products and services, consumer products and services, hardware and media and entertainment.
When calculating your yearly growth prospects, do bear in mind that most experienced angel investors expect no less than 31-40% annual returns on their early stage and start up investments. Anything less might not be realistic and send the wrong message to an angel investor right from the start compromising the possibility of you raising angel finance.
And finally, if you are not getting the 31-40% annual return growth stat, a good strategy may be to focus on other elements of your angel investment proposal, example, if you have invested over £10k into your business, an angel investor may see this as an increased commitment on your part and may well look past your ROI figures.