The Factors That Motivate Angel Investors to Invest in Small Businesses

The online popularity of angel investors has proved to be good news for small businesses and startups. Angel investors always show great interest in investing in small businesses. Venture capitalists make up a great portion of the total investment market around the world, but these investors have never been the fittest for startups and small businesses.

Even when they are willing to put their money on the line a small venture, their terms and conditions are too strict for a small business owner to say ‘yes’ to a deal. Angel investors, on the other hand, are quite flexible with their terms and conditions and make the life easier for small business owners.

But what motivates angel investors to go after such investment opportunities where the risk is higher than usual for them?

The Motivating Factors for Angel Investors

·         The Urge to Encourage Local Businesses

A common notion is that angel investors show great interest in local businesses. They are more than willing to help small businesses from their local towns with their funding requirements. There can be many reasons why they are interested in local ventures so much. It’s possible that they want some recognition for their town, city or county. Perhaps, they find it easy to trust the local individuals than to trust someone from the outside.

Keep in mind that it is much easier for angel investors to become known in their local town than it is to become famous internationally. Maybe they see their investments in local ventures as a starting point of their networking. They can first target the local audience, become the first go-to person or group for all the new local businesses, and then expand outwards to other areas. In simple words, local businesses and entrepreneurs motivate angel investors a lot more than foreign investment opportunities.

·         The Passion for Doing Something Big

Angel investors can be interested in a small project simply because they want to do something special. Becoming part of a well-established brand does not prove the potential of an investor. Instead, it only proves that they are financially strong. However, in the mind of an investor, they want to show the world their prowess as an investor and the power of their foresight. If they can invest in a small business today that becomes an international brand tomorrow, it is an achievement for them and a five-star entry in their portfolio.

Take the example of Chris Sacca, who spent several years of his life as an angel investor. He invested in several companies and sold them later to big giants. It was his angel investment of just $25,000 in Twitter that proved to be one of the biggest for him.

·         Unique Ideas

This factor can hold true not only for angel investors but other types of investors too. However, angel investors are the ones who show more inclination to invest in unique ideas than venture capitalists. You have to keep in mind that angel investors don’t make huge investments.

As compared to the investments from VCs, their investments are small in size. It is for this reason angel investors are in a better position to invest in unique ideas. Investing in such ideas is more like an experiment for them, and they can experiment with their money because they are putting a very small portion of their savings on the line.

·         Energetic Entrepreneurs and Teams

Sometimes, it is not the idea that’s interesting but the people who are promoting it. The product or service that a startup wants to introduce in the market might seem mediocre. However, the passion of the entrepreneur and the professionalism and preparedness of the team might be compelling for an angel investors. That’s why experts advise small businesses and startup owners to have an impressive business plan and a strong team because both these factors can convince investors to invest.

·         The Diversified Portfolio

A diversified portfolio is a motivating factor for certain types of investors. Some billionaires like Mark Cuban, Chris Sacca, Lori Greiner, etc. have vastly diversified portfolios. It is not a phenomenon that’s common for new investors, but even the most mature and experienced investors like to keep experimenting. Having a diversified portfolio of investments is also a way for investors to reduce their losses. Rather than investing all of their money in one industry and drowning it all if the industry collapses, it is better to invest small amounts in a variety of industries.

·         Personal Reasons

Believe it or not, personal reasons are among the common motivators for angel investors. Angel investors often invest their savings and earnings in new businesses. It’s noteworthy to mention that angel investors are sometimes people who at one time may have tried to start a business without success.

After a failure, they are often looking for someone who they think has the right attitude, passion, and preparedness to be successful with the same idea. It gets their attention immediately when they see someone trying to build a business around an idea that they had once tried in the past. Call it nostalgia or investment out of emotion, but this is the driving force behind many angels investments.

In the End

The points you see above include a few ways for you to compel an angel investor to invest in your project. The essentials that you have to work on include:

  • Finding a unique yet practical solution to an existing problem
  • Coming up with unique ways to promote your idea even if it is clichéd
  • Having the right team by your side that shares your vision
  • Showing an attitude that persuades the angel investor to invest in you even if your product/service is not the most appealing one

Last but not least, you should also research and find out the platforms that angel investors like to visit frequently. When you are a small business or a startup, you have to run after the opportunities rather than wait for them to come to you.

Access our network of Angel Investors, Venture Capital or get instantly matched with a Lender. Create a Crowd Funding campaign or get a Business Plan by visiting us Funded.com