What angel investors really look for in startups

A strong USP isn't enough – your business idea needs to be innovative and have potential for the long term, explains Steve Mooney.

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The startup economy is continuously growing, with 202,130 new UK businesses incorporated within the first 12 weeks of 2023. While this surge in entrepreneurial activity is a testament to innovation and creativity, it has also given rise to a challenge – an oversaturation of businesses competing for attention and funding, including from angel investors.

In this fiercely competitive landscape, startups are compelled to distinguish themselves in order to attract investment and thrive. This brings us to the pivotal role of angel investors – individuals who provide essential funding to early-stage startups in exchange for equity.

FundMyPitch is dedicated to bridging the gap between investors and startups seeking funds to kickstart their operations. But, for founders trying to obtain such funding, understanding what angel investors are looking for is crucial in order to secure investment and propel their ventures forward.

So, what exactly are angel investors looking for in startups?

Long-term investment goals

While startups often operate in an environment of rapid growth and change, successful angel investors tend to focus on the long-term potential of their investments.

They seek startups that exhibit not only immediate promise, but also the ability to sustain growth and adapt to evolving market dynamics.

Angel investors often bring more than just funding to the table; their expertise, mentorship, and network can significantly impact a startup’s trajectory. Therefore, they look for founders who share their commitment to building a scalable and sustainable business.

Craft a unique selling point (USP)

In the sea of startups, having a unique selling point is non-negotiable. Angel investors are drawn to startups that offer something truly distinctive – a solution, product or service that sets them apart from competitors.

However, it’s not enough to just have a USP; it must be marketable. Investors seek startups with USPs that resonate with target markets, addressing real pain points and fulfilling unmet needs.

A compelling USP not only captures investor attention, but also forms the basis for effective marketing and customer acquisition strategies.

Within FundMyPitch’s pitching process, startups can generate a 60-second video to promote their idea and why they should receive funding. It is therefore crucial for startups to get their USP across in a creative and concise manner. The benefit of a short video pitch is that it allows investors to get to know the founder and their team at an early stage.

More on this – How to create an effective elevator pitch

Leverage the AI boom

With the rise of artificial intelligence (AI), angel investors are becoming increasingly interested in emerging and innovative technologies and services with cross industry applications.

Investors are drawn to the transformative potential of AI across various sectors, from healthcare to finance to manufacturing, and startups that harness AI to solve real-world problems and disrupt traditional industries have a distinct advantage in attracting angel investment.

For example, ventures like Mistral AI recently secured a remarkable €240m after just four weeks in Europe’s largest ever seed round, demonstrating the growing interest in AI-driven startups.

Demonstrate constant innovation

In a landscape characterised by constant change, startups are expected to not only keep up with emerging trends, but also pioneer innovation. Angel investors are on the lookout for startups that possess a keen ability to identify and capitalise on the next big thing.

For example, the potential of the LK-99 superconductor to open new investment vistas highlights the need for startups to explore ground-breaking technologies that can redefine industries. This can overall provide them a competitive edge.

This comes following recent news that in the capital, 64 per cent of SMEs are turning to technology investments to increase productivity and 43 per cent are doing so to future-proof their company. This is compared to 45 per cent UK-wide.

The data revealed that London SMEs are directing an average of 54 per cent of their annual revenue to technology investments, such as data analytics and artificial intelligence tools, as they try to counter rising costs and climbing interest rates by increasing productivity.

However, investors are often wary of overhyped technologies that have saturated the marketplace. Skilled angel investors possess the acumen to discern genuine opportunities from fleeting trends. They analyse startups critically, considering factors beyond the hype, such as market demand, scalability, and the strength of the founding team.

Appeal to the need for diversification

Angel investors understand the importance of diversification in their investment portfolios.

They seek startups that not only offer compelling solutions, but also span different industries, thereby mitigating investment risk. The most successful founders are often those who address cross-industry challenges, making their startups relevant and appealing across sectors.

By investing in a diverse range of startups, angel investors can enhance their chances of backing a winner while safeguarding against industry-specific volatility.

Next steps in seeking angel investment

The startup ecosystem is thriving with an influx of new businesses seeking to make their mark. However, standing out in this competitive landscape requires a strategic approach that resonates with angel investors.

A potent combination of a marketable USP, a focus on long-term sustainability, innovation in emerging technologies, adaptability to shifting trends, diversification, and a discerning approach to overhyped technologies are key ingredients that attract angel investors to startups.

For founders, understanding and embodying these qualities can be the catalyst that transforms their startups from promising concepts into successful, impactful ventures.

Using technology, such as video pitching, can help entrepreneurs to showcase these qualities while forming connections with potential investors in a more personable setting. As the startup economy continues to evolve, the symbiotic relationship between startups and angel investors remains a driving force behind innovation and progress.

headshot of Steve Mooney of FundMyPitch
Steve Mooney

Steve Mooney is CEO and Founder of FundMyPitch

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