Central Illinois Angels is excited to have 18 months of experience under our belts. We are pleased to report that we have nearly 50 members and have closed on five investments totaling $1.3 million as of March 1, 2011. Over that period of time, we have had 24 companies present to our screening committee and 13 companies present to our full membership. As we continue to learn and grow, we have discovered some key areas that can be critical for companies to receive funding.
Value Proposition. The value proposition is a short statement that articulates the target customer, the problem the customer is experiencing, what your unique solution to the problem is, and the net benefit (value versus cost) to the customer. A value proposition that cannot be clearly and easily understood will result in an inability to gain an audience with investors. The idea or invention may appear to be novel on the surface, but that is not enough—investors need to be able to recognize why customers would be willing to part with their cash to purchase your product.
Market Opportunity. It is critical to understand how many actual customers are out there who would be willing to pay you for the value you would create for them. Many entrepreneurs highlight a tremendous and broad market, but a true understanding of the number of real customers will lead to more accurate revenue models. Angel investing is a high-risk, high-reward activity, so investors need to know a market exists that will support the projected growth of the company.
Company Valuation. It is not uncommon for entrepreneurs to significantly overvalue their company when they are seeking equity investors. This overvaluation often occurs because the entrepreneur has likely poured not only his resources, but also his heart, into the company. However, it is important to recognize that investors want to see a well-thought-out, reasonable valuation. It is also essential to tell investors how much funding is needed, how the funds will be spent, how long it will take to spend the funds, and what additional funding will be necessary over the long term.
Investment Partnership. Investors often desire to bring more to the table than funds—this would include business contacts, industry experience and functional experience. Investors may be participating on the company’s board and will often take on the role of advisors and mentors—we want to know that entrepreneurs are willing to work with us in these areas. After all, both investors and entrepreneurs should be seeking the same outcome—a positive exit in a three- to five-year time period.
Management Team. This is often the most vital component. Having a team with proven leadership and management skills, along with strong industry backgrounds and relevant experience, is critical. That being said, it is often as important for entrepreneurs to recognize their management team deficiencies and what key team members they need to add. iBi
Central Illinois Angels is a membership-based angel investment organization composed of business leaders and professionals in central Illinois. For more information, visit centralillinoisangels.com.