Before joining the New York Angels, you should make sure that our investment criteria and process are in alignment with your expectations. The New York Angels invest between $100,000 and $1,000,000 in early stage companies. We are looking for companies that have an established proof of concept and are poised for growth. We have invested across multiple industries but have a core strength in business products & services, media, internet/web services, mobile, and financial services. We tend to avoid investments that require significant capital and regulatory approval in order to get their product to market, such as life sciences. Finally, almost all New York Angel valuations are below $5 million pre-money.
While the merits of each investment will vary, we evaluate ventures according to the following criteria:
- Management team. We look for teams of high-quality entrepreneurs with a track record of leadership and performance - either in the company's specific industry or in prior entrepreneurial ventures. We also look at the team's passion for and commitment to the new business idea, and its ability to inspire confidence among future stakeholders, including employees, potential customers, and investors. As we will be working together as partners, the team's credibility is essential. In addition, the team must be open to and comfortable with receiving input provided by angel investors.
- Market opportunity. We invest in solutions that address major problems for significantly large addressable target markets (i.e. a $500+ million market). The company must demonstrate a strategy to claim a reasonable share of this market.
- Financials. We are looking for well thought out and reasonable revenue plans. Most financial plans do not achieve their revenue projections, so we will evaluate plans under the assumption of a revenue shortfall. Consequently, gross margin and cash positions are critical variables to manage.
- Valuation. Most New York Angels deals have pre-money valuations that are below $5 million. The majority of our deal valuations are in the $2.0 million to $3.5 million range. A key reason for this is that it gives the investor the potential for a nice return at a modest exit valuation. It also allows for some protection against future round dilution. It is in the entrepreneur’s best interest to have the valuations of subsequent rounds increasing and avoiding bad will and anti-dilution ratchets.
- Use of proceeds. Funds must be used to accelerate the company's achievement of key milestones that increase the company's value. We often fund activities that include research and product development, building a sales and marketing infrastructure and hiring key executives.
- Growth potential. We look for companies that can grow quickly and manage the scale necessary to succeed. The company must demonstrate a plan to generate significant profits beyond the initial product idea. Is there a strategy to achieve multiple sources of revenue?
- Competitive advantage. The company must have some proprietary features that distinguish it from potential competitors or provide barriers to entry that prevent other companies from capturing customers with a similar offering. Attributes that convey competitive advantage include intellectual property protection, exclusive licenses, exclusive marketing and distribution relationships, strong brands, scarce human resources (i.e. knowledge and skills), and access to scarce raw materials.
- Fit. Our group members - all accredited individual investors - have significant executive experience in a variety of fields. One of the benefits of working with angel investors is the active coaching and contact network that such investors can provide. As such, there must be a fit between members of our group and the company.
- Technology. We prefer to invest in first-of-a-kind new ideas, rather than incremental enhancements to common products and services. Is this a nice-to-have, or a need-to-have product or service? However, we approach highly complex, esoteric technologies with caution. The concept behind the technology must be proven and verifiable. Further, we avoid science projects that don't demonstrate a clear path to commercialization. Any breakthrough innovation must be accompanied by a strong business plan.
- Exit strategy. Our members typically seek returns of at least five times their initial investment, within five years. This level of return on investment is essential due to the high risk and likelihood of failure among early stage ventures. Thus, a clearly articulated exit strategy - how angel investors will extract such returns - is essential. For example, do you plan to sell the company to an established corporation in your industry? Or will the exit be through subsequent rounds of financing - venture capital or the public markets? Angel investors are not just interested in the strategy, but more importantly in the how - the operational strategy that shows specific steps that will be taken to achieve the exit.