Why shouldn't angels like "cash flow" deals? This comment was just posted:
"Since most angel investors are using their own personal funds why are cash flow deals less intriguing? Assume a deal was structured such that the initial free cash flows were guaranteed to investors, say 2-3 times the initial investment amount, with cash flow sharing moving forward. An entrepreneur would assume that they are guaranteeing the investor a certain rate of return with unlimited upside. What are your interpretations of this deal assuming the product is a “one trick pony”? -- Patrick's comment
I assume this angel investor is not in the "friends and family" category. That's important because cash flow deals probably are good for FF investors, since their reason for investing is probably more in support of someone they know than in an investing strategy.
Angels typically are investing as an investment activity.
So, the reasons angels probably won't like cash flow deals:
1. The returns are capped in most situations. ("I'll give you 95% of the cash flow until you get two times your money," etc.)
2. There's no opportunity to sell the business when the market values are high.
3. The angel is tied into the business for a very long time and therefore has less time and/or less investable cash for other deals.
4. The absolute amounts of the cash flows will not in most cases be as good as the total of sale proceeds.
That having been said, I know quite a few investors who only do cash flow deals and who buy significant portions of companies and operate them. This is a different category of investing and isn't really what most people think of as angel investors.