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How Do Angel Investors Really Decide What to Invest In?

August 26th, 2009 | 2 Comments | Posted in Management, Private Equity, Venture Capital

The criteria used by angel investors to evaluate and select investments are usually a mystery.  The folks at Venture360 have recently taken a stab at demystifying this process.  A recently completed analysis of angel deals closed in the first half of 2009 showed some surprising results – the quality of a venture’s management team was four times more influential in funding decisions than more traditional factors like the venture’s economic model, deal structure, and projected revenue growth.  The report was based on an analysis conducted by Venture360.  Venture360 offers an online solution developed by North Venture Partners, Citrusbyte, and the Venture Phenome Project.  The application enables angel investors to assess investment candidates from both a quantitative and qualitative basis along eight dimensions and 80 sub-dimensions.  In the study, 1,450 investment candidates were screened by 16 angel investment firms, 29 were investigated in depth using the Venture360 platform, and 18 were eventually funded for a total of $16.5 million.  A full presentation of Venture360’s analysis is presented below.   When Venture360 analyzed how the funded ventures were scored, some interesting facts emerged:

  • “Management team was a dominant driver in investor decisions, more than double the influence of several other score factors
  • Venture attributes thought to be significant like existing revenue, deal structure, and revenue growth had the lowest correlation with actual funding decisions.
  • The early data shows that investors are more likely to invest in a strong management team with an unproven revenue model and lesser deal terms than they are to bet on a rapidly growing market with a low scoring management team.”

Check out the complete analysis below.  Additionally, if you would like to see what a sample Venture360 report on a specific investment opportunity looks like check out this link.

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