So, which is it? Are angels investing in people or ideas? Honestly, it’s a bit of both. However, if you’re in a position to choose one or the other, investing in people is often the smart way to go.
Twitter, the popular social media platform now known as X, is a great example of this concept in action. Initially presented as a project with no roadmap and no revenue model, the idea of having people share their thoughts in 140 characters or less was shaky at best, but early investor Mike Maples wasn’t discouraged. He considered Twitter’s co-founder Evan William’s previous success with Blogger and was inspired by the entrepreneurial spirit of what Twitter could become. After a successful launch in 2007, the platform saw rapid growth and engagement, proving to Maples that the risk had been well worth it.
If you’re interested in learning more about angel investing and the investment criteria that inform angel investors’ decisions, you’re in the right place. We’ll explore how angel investors weigh the strength of the idea versus the capabilities of the founding team, and how they strike a balance between the two.
Compelling Ideas vs. Strong Teams
Startup investors, such as angel investors, enter at the “dream” stage of a team’s idea for a business. They provide crucial early-stage funding, giving entrepreneurs the resources they need to make their dream a reality via capital, mentorship, and networking opportunities. They know they’re taking a risk by investing in a business that’s just getting off the ground, which is why their investment criteria often stem from personal belief in a team’s mission and potential for success.
Plus, a powerful idea alone, no matter how innovative or unique, isn’t enough to guarantee success. This is where the “investing in people, not ideas” philosophy really comes into play. Startup investors recognize that ideas, while important, are fluid, and that startups rarely follow a linear path. A business concept that seems promising today may face unforeseen market challenges, competition, or regulatory obstacles tomorrow. The ability to pivot, change direction, or refine an idea is essential to long-term growth, which makes a strong, resourceful team an incredible asset and a solid investment.
The Balancing Act: What Angel Investors Really Look For
So far, “investing in people, not ideas,” may seem more hopeful than strategic, but the reality is that the investment criteria angels must rely on when choosing a startup have a distinctly human element. Their strategy involves weighing the pros and cons of what a particular team brings to the table, ultimately determining whether their idea measures up to their personal potential.
Here are some examples of what startup investors are likely thinking about when evaluating a new opportunity:
Vision, Passion, and Soft Skills
Behind every idea there’s a vision and behind every vision there’s passion (or a lack thereof) that holds the key to driving a winning idea forward. Are the startup’s founders confident? Do they inspire investors with their zeal for their product or service, weaving an authentic, heartfelt story around their mission and their values? A smart angel investor knows the value of an excited, motivated team that believes in itself.
Confidence may be killer, but the team in question needs certain soft skills to back it up. Communication, leadership, honesty, and self awareness inform how a startup will tackle potential roadblocks and incorporate outside support and advice into their work. Teams that work well together and can acknowledge both their strengths and weaknesses hold serious potential, regardless of the idea that sparked their original startup dream. In fact, a not-so-great idea can be turned around by a strong team if they’re willing to embrace change and growth.
Track Record and Experience
How well does a startup team understand their industry? What about their market landscape? A healthy dose of realism and a solid background in the industry of choice can be a token of knowledge and reliability as the team gears up to face and overcome that industry’s unique pitfalls and challenges. The ability to keep up with industry trends is also a plus. Agility and adaptability will help keep the initial idea afloat.
Ability to Execute
Actions speak louder than words, and execution ability speaks much, much louder than ideas. For an idea to evolve into real, actionable results, startups must demonstrate their capacity for product development, marketing strategies, and a clear understanding of their target audience. Effective, efficient execution also includes the ability to generate revenue and scale the business over time.
In other words, the idea for a startup can’t just be taken at face value. A concept needs to have a clear path to becoming a tangible product or service. Without one, even a stellar idea can easily flounder and fail.
Risk and Reward Calculation
When evaluating investment criteria, the inherent uncertainty that comes with a startup idea must be worthwhile. We mentioned agility and adaptability before, and this is where these traits appear again. A startup team is either flexible and resilient enough to overcome challenges, such as tough competition or market uncertainty, or they can’t handle the ups and downs of starting a business and won’t respond well to unexpected changes.
A successful team can learn from their mistakes, make the right decisions, and open their minds to the idea that their initial startup endeavor may evolve. Again, it’s not the idea. It’s the room the idea has to transform and reach its full potential, and only a truly dedicated and well-rounded team can make that happen.
Assessing the Big Picture
A true angel investor understands that the relationship they establish with a startup’s team goes deeper than writing checks. During the “screening process” we’ve detailed above, investors will try to get an accurate portrait of team dynamics and build a rapport with the founders, all in the hopes of receiving the critical “gut feeling” that will guide them towards an actual investment or the need to part ways.
Remember, angel investing is a journey. Who startup investors choose to journey with will rarely be simple and straightforward.
How to Become a Successful Angel Investor
Whether you’re already on the path to becoming an angel investor or you’re browsing our website with the goal of setting out on that path, VentureSouth wants to encourage you to pursue your dreams, invest in your passions, and consider joining an angel investment group. More than just a supportive community, this kind of membership can give you the insight you need to make a meaningful impact and invest wisely, whether it’s the people or the ideas that ultimately win you over.
As you look for local angel investing groups in your area, consider joining VentureSouth!