What Angels look for in a deal.

Angel investors don’t usually flock together and most like to invest close to home. So, where do you find them?

- Local service providers know them. Talk with lawyers, accountants, financial advisers, bankers, and business consultants.

- Attend seminars and forums hosted by groups like UCSD CONNECT and the San Diego Software Industry Council (SDSIC).

- Contact organized investment groups, such as TechCoast Angels, which has 300 members throughout Southern California, from San Diego to Santa Barbara.

Here's what San Diego Angel investor Charlie Gaylord looks for in a deal:

- a defined market of at least $50M.
- a real business, not just a product (a product should probably be sold off to
someone else).
- a potentially rewarding exit - X10 return in three to five years (> 100% / year)
- a good business model (that's the idea you’re going to execute against to create a
profitable business).
- a team that can execute well.

When Gaylord invests, it’s usually in a field he knows something about and he does only two or three deals a year. He looks for something that’s big, necessary, and can be defended. He’s very interested in seeing potential sales growth validated, not with a “hockey stick” market projection, but with serious market research. He likes companies that are market driven, not technology driven, but says most of the plans he sees are product or technology driven.

If he hears that there’s no one in the market, he worries that there’s no market. If he hears that there are some serious players in the market, he worries that about being crushed. He’s drawn to products in emerging markets that are based on a fundamental improvement in something meaningful, such as a business process.

He says, “In summary, I’m looking for a business (not a product) which can grow to give me a financially rewarding exit (X10 return) in a reasonable time (3 to 5 years) that has a management team capable of leading it. I like to know the management team has thought enough about the business to be able to articulate it in a business plan.”

He suggests additional contributions a startup entrepreneur could look for from financial partners beyond just money might include:

- strategic relationships.
- business savvy.
- recruiting help.
- corporate governance.
- help preparing to go public.