Angel investors are an important source of funding if you are starting a new business. You need to create a solid angel investor business plan before you speak with business angels.
Angel investors have a common goal – i.e., increasing their investments manyfold over the period. Your angel investor business plan shall prove that you have an innovative and viable product backed with strong market validation and a realistic growth plan that could significantly increase the shareholder’s worth.
If your angel investor business plan fails to deliver the right insights, no matter how great your idea/product is, it is unlikely to attract angel investment. Therefore, it is essential that you meticulously develop your angel investor business plan and seek professional help where required.
There are virtually 30,000 active angel investors in the UK, providing $23.1bn a year to companies. Some statistics about angel investing in the US are given below:
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In this guide, we will explain the step-by-step process to develop a winning business plan for angel investors that effectively articulates the founder’s vision, showcases products and services, demonstrates market potential, and maximises the chances of securing angel investment.
Who are angel investors?
Angel investors are private investors that may operate “individually” or in “groups”. They actively seek investment opportunities in start-ups and early-stage businesses in exchange for a certain percentage of equity stake. Some of the examples of angel investors include, but are not limited to, wealthy people such as stock traders, actors, social media influencers, sportspersons, c-level executives, or even entrepreneurs with ample spare money to invest in other businesses for passive returns.
Businesses normally find angel investors in their locality making it easy for the business owners to target them. Further, as angel investors are private individuals, their business plan evaluation and funding process is less bureaucratic as compared to institutional investors and lenders such as venture capitalists and banks, making it simple and fast to raise capital from them.
However, with their individual capacity and risk diversification strategy, angel investors may offer limited funding to your business. They normally provide angel investment in the region of $50,000 to $200,000, with some daring angel investors going up to $1 million in highly successful businesses. Nevertheless, angel investors are the main source of funding for small businesses, start-ups and early-stage companies alike.
Experienced angel investors usually have a strong background in entrepreneurship due to providing angel investment to several start-ups and experiencing both success and failure in their professional angel investing career. They normally invest in high-growth businesses that have the potential to multiply their investment many-folds in years to come.
Angel investors may also bring a wealth of industry experience and knowledge which will be beneficial for your company. This includes bringing industry connections and providing you with the advice and mentorship to steer your company’s operations, helping you to accelerate your business growth.
What are angel investor groups?
Angel investor groups are private investment groups that mainly consist of several individual angel investors. They usually pool their capital and collectively provide funding to new businesses. This helps them further diversify their risk and benefit from each other’s expertise in the group. The following are the top 10 angel investor groups in US and Europe:
What types of business do most angel investors focus on?
Angel investors focus on early-stage businesses and start-ups as these businesses can offer huge capital appreciation in a short period. Their main objective is to identify high-potential start-ups and early-stage businesses, fulfil their initial investment requirement and obtain a percentage of equity stake before they come on the radar of big venture capitalists.
While angel investors are usually sector agnostic, they usually prefer to invest in highly innovative, tech start-ups, specifically in emerging technologies such as web4, AI, blockchain and big data. Technology companies have a history of generating explosive growth. The technology industry has the third-highest billionaires, only behind finance and investments.
Nevertheless, small businesses can also attract angel funding. For example, an entrepreneur may raise angel investment to start a new brick-and-mortar business. There are many small-scale angel investors that fund and support small, local businesses and provide anywhere from $10,000 to $50,000 in funding.
The small business however needs to demonstrate that by angel investing in it, its shareholders will reap a higher return on investment over the period.
How to Find Angel Investors?
First, you shall begin with your circle of friends and family. Create a list of potential investors that could provide you with the funds. Approach them directly and present your business plan. As you have a historical relationship, there will be a “trust factor”, making both of you (entrepreneur & investor) comfortable working with each other.
Further, you may also check Angel Capital Association which is a professional society of accredited investors. Some key facts about Angel Capital Association are provided below:
- 15,000+ member accredited potential angel investors
- 250 angel groups, accredited platforms and family offices
- 30,000+ entrepreneurial companies in ACA member investment portfolios
Another popular source to scout potential angel investors is Angel Investment Network. As of May 2023, Angel Investment Network has 1,966,348 registered members with 324,146 potential investors and 1,642,198 entrepreneurs.
Aside from an angel investor directory, you shall also focus on connecting with industry experts, executives and decision-makers through LinkedIn. It is a great tool to find new business opportunities, including finding the right investors for your business.
Make sure to complete your business plan before approaching a prospective business angel. Alternatively, you may consider creating a pitch deck which can also be used to present your idea to your prospective investors.
Traits of a Good Angel Investor Business Plan
Give it a purpose. Why should investors fund your start-up? Some investors do it for commercial gains, such as receiving frequent dividends and incremental capital growth, while others do it for a variety of other reasons. It may be the excitement and thrill of starting a new business which is novel, innovative and disruptive or helping the community by solving a critical, long-standing problem. You need to pause for a bit and think – why are you establishing a business? What purpose would it serve? Make it clear in your business plan to draw the investor’s attention.
Spotlight the opportunity. A good angel investor business plan always highlights a clear opportunity which is discovered through market research. The opportunity will arise as a result of sizing up your competition and evaluating their weaknesses, understanding your target market persona and identifying potential market pains which may form a ground to innovate a product.
Strong leadership. It is important to have a strong leadership team in place to spearhead a new business venture. A start-up operation can be extremely complex, hence investors will more likely back a company that has an experienced and versatile team at its helm. The business plan for angel investors shall highlight the previous achievements of the business owners and C-level management team with evidence to make a strong case for funding.
Demonstrate lucrative returns. The key motivation for wealthy individuals to invest in a business is solid returns which are usually higher than other asset classes including hedge funds, stocks and others. Angel investors expect to reap on average 30% return on investment. Accordingly, a $1,000 angel investment in a start-up today shall be valued at over $10,000 in nine years.
These are average returns in the market. Some businesses might promise suboptimal returns but still manage to draw investors because of their low-risk business model. Nevertheless, a company with a perfect balance of risks and rewards will always succeed in raising angel capital.
A profitable, yet practical, exit strategy. Angel investors expect to see a realistic exit strategy if they would have to dispose of their investment in the future. The angel investor business plan shall answer how long they should hold their investment to reap a higher return as well as a periodic dividend yield. The plan shall also explain possible exit options including selling shares to the company’s principal, merger and acquisition, sale of shares to third-party or IPO.
How do I write a business plan for angel investors?
Once you have identified a need to raise capital from angel investors, the next step is to prepare a solid business plan. The business plan for angel investors shall explain your objectives, strategies, product/service description, market validation and how you intend to grow your shareholder’s wealth over the period. The ideal structure of the business plan for angel investors is outlined below:
- Prepare an Executive Summary
- Identify Problems That are Worth Solving
- Clarify the Business Model
- Provide Market Validation
- Explain Your Go-to-Market Strategy
- Define Your Operations
- Introduce the Management Team
- Project the Company’s Financials
1. Prepare an Executive Summary
The executive summary is the first impression of your business plan which can make or break your case. Therefore, it is imperative to keep it clear, succinct and impactful. The angel investors will only read the remaining business plan if they are impressed with your executive summary. A good executive summary should cover the following content:
- What are your products and services?
- What is your target market?
- What are the industry size and trends?
- What are your capital requirements?
- Who owns the company?
- What are your short and long-term objectives?
- What are the key success factors?
2. Identify Problems That are Worth Solving
This section shall prove that you will address the key market problems that the target market is facing by using competitors’ products and services. Your solutions should be viable that will help you sell more than competitors.
To identify market problems, you can read negative reviews of your competitors on Google, Facebook, TrustPilot and other third-party review sites. Try to find out common issues that you observe across major competitors and develop a viable solution to overcome them in your business.
You may also survey customers of existing companies and analyze the outcome This may lead you to identify problems that are worth solving in your product.
3. Clarify the Business Model
You shall clearly define your business model which includes explaining your products/services, product/service features/characteristics, value proposition and unit economics among others. The objective is to deliver information about your primary business and how you will derive income.
4. Provide Market Validation
In the angel investor business plan, it is important to provide market validation of your products and services to draw the interest of the reader. This includes providing industry size, growth trends and future forecasts to help visualize the market potential of your business idea.
It is also important to consider relevant economic indicators that could impact your business and product/service demand such as economic growth, increase in consumer disposable income, employment rate, etc. Explain their positive or negative impact on your business and your strategies to mitigate the risk.
You can also buy ready-to-use market research from various companies, including IBISWorld, Statista and Euromonitor among others.
5. Explain Your Go-to-Market Strategy
Go-to-market strategy outlines your plan to bring your product/service to the market which the angel investors would be curious to know especially in a competitive space.
You shall clearly explain your target market size, including total addressable market (TAM), serviceable available market (SAM) and serviceable obtainable market (SOM), distribution network, delivery channels as well as your primary advertising, marketing and promotional strategies to spread brand awareness.
6. Define Your Operations
The operations plan is also an integral part of the business plan for angel investors. It describes the physical needs of your company to start up and run its subsequent operations.
The operations plan should include the legal and compliance requirements, location and facility, equipment, vendors and suppliers, human resource requirements and organizational structure.
7. Introduce the Management Team
It is important to provide information about the management team that will be at the helm of the company, guide and manage its day-to-day operations. The management team’s background, business acumen and vision will play a pivotal role in attracting investment.
You shall consider providing professional overviews of the company’s founder(s), board of directors, advisors, hired management team personnel or those that the company intends to hire soon. You shall also explain their compensation and shareholding if applicable.
8. Project the Company’s Financials
Projecting the company’s financials are important to help investors envisage a higher return on investment over the next few years. The business plan for angel investors usually encompasses 3-5 years of financial forecast.
The financial projections in the business plan should include a start-up cost summary (applicable for start-up companies), break-even analysis, sales forecast, profit and loss, cash flow and balance sheet. Further, you should also consider creating an investor offering section that details how much investment is sought and equity consideration.
As evident above, writing an angel investor business plan needs a thorough understanding of the product, industry/market as well as a fair understanding of the financial forecast to pitch your idea realistically. Angel investors will provide funding when they appreciate your idea and believe in you and your team’s ability to deliver results.
You should also consider getting help from a professional business plan writer to help you craft a winning business plan. With more than a decade of experience, Aceplans has a reliable team of business plan writers who can turn your idea into an investable business plan. Get in touch with our team today to discuss your case.
Our Core Solutions for Angel Investment
Attracting angel investment requires a strong business plan that effectively describes your business and delivers realistic and coherent strategies. Our team can help you create an angel investor business plan which is clear, well-articulated and elegant. With our expertise, your business plan will captivate angel investors and maximize your chances of securing the essential angel investment you need to take your company or start-up forward.
Acting as a business resume, a one-pager investment teaser is effective for quickly presenting your idea to on-the-go angel investors. Our team can help you with creating a compelling one-pager investment pitch for angel investors.
A pitch deck is a visually compelling presentation which is delivered to angel investors to raise funds. Our team can create a persuasive pitch deck, enabling you to impress your investors and secure angel investment.
Package
We also offer all of the aforementioned services in a single package. This will save you both time and money, as relatively less effort is required when these documents are prepared simultaneously.
Top Industries for Angel Investor Business Plan
While we produce business plan in almost all industries, we frequently prepare business plans for angel investors in the following industries:
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