Most experienced angel investors
will expect no less than 31-40% annual returns on their early stage and start up angel investments.
This is the ideal range someone seeking to raise investment should aim for in thier business plan and financial projections that are sent to an Angel Investor.
Anything less than a 31-40% annual ROI might not be of interest to an Angel Investor. Anything more than a 31-40% ROI may not be realistic and send the wrong message to Angel Investors right from the start!
As an entrepreneur considering raising angel investment you must obviously factor in the amount of angel investment
you are looking to raise, the types of shares you will be offering and a target return based on that.
The Angel Investor will have a definite return on investment (ROI) in mind for the types of investments that you represent but which will also be influenced by the figures projected in the Investment summary of your investment proposal.
What’s important here is to be aware that the angel Investor always sees this as a bigger risk than the entrepreneur does and as such will look for a larger % in return to offset any errors in your projected figures.
Consider, How much Equity is enough
in return for an Angel Investors investment, and also you may be surprised to find out that there are many businesses and entrepreneurs' that have, and are considering Giving away Equity for NO Angel investment
The article link above lists out the reasons why a start-up business may be motivated to do to give away equity in return for no investment and an angel investor may instead of investment take on a share of the liability of the company or be forced to invest in the future life cycle of the business or when a second round of funding was needed.
Potential conflict occurs when the entrepreneur makes a common mistake that can skew the perception of the % in question, comparing the ROI offered to typical bank loan rates. Remember it is a free market out there and it is the entrepreneur who needs the funding to either kick start or improve his business. How the business plan is presented can heavily influence the perception of the risk/reward investment opportunity. A further consideration to make is how much cash have you invested in your business
, and how to calculate this in your angel investment/equity ratio.
To this point, angel investors do know the risks involved and while they can be very patient waiting for their return, they expect to be well compensated for their risk.
Any early stage or start up business is considered very high risk, no matter what the business is. As a result, angel investors want a higher return in exchange for this risk and ideally, 30-40%. Some will accept less and some will want more but this should be your realistic target and objective for what an investor wants for ROI. Venture Capitalists will potentially demand much more rigid terms over an Angel Investor, and RAISING MONEY: Venture Capital vs. Angels Funding
covers this topic very well.