Angel investment is the biggest source of early stage capital for early stage tech startups. Angels are generally high net worth individuals who want to put a proportion of their wealth into funding entrepreneurial businesses. They have a number of motivations including financial, intellectual stimulus and entertainment. It is crucial to understand how to interact with this important group. Following these tips will improve your chance of receiving the investment you seek and closing your funding round as rapidly as possible;
Make sure you are investment ready – It is now rarely possible to obtain investment for ideas alone. Investors have a choice. They would rather reduce their risk by investing in a strong team with good leadership development potential rather than simply a good concept. Make sure that you can prove product/market fit before approaching angels.
Have a great investor pack – The central document is the pitch deck. This needs to clearly convey the proposition. Investors receive large number of pitch decks every week, and only the very best will stand out and get their attention. Make sure that the key points are covered in the most concise way possible. Dave McClure of 500 Startups has produced a good template deck to use as a guide. You will also need a one or two page executive summary. This can be sent in an email to stimulate initial interest.
Be realistic about valuation – Angels will see it as a sign of naivety if you seriously over-value your startup. The valuation of startups prior to revenue generation is tricky but you can look at how other companies are valued at a similar stage and use this as a guide. You should be able to back up your valuation with data.
Research your potential angels – You can find a lot of information online on platforms such as Linkedin. The objective is to determine whether you are dealing with a genuine angel or a consultant. Once you are sure you have a real angel you will need to check that they are currently active, what they invest in and how much they generally invest. It is often a good idea to ask these questions directly. Most genuine angels will be happy to answer with relatively detailed answers.
Let everyone know that you are fundraising – Get the word out that you are fundraising. Word of mouth is very powerful. Although it is important to let people know that you are looking for funding, don’t bombard everyone with pitch decks or exec summaries. Save these for the angels that you know will be interested in your specific proposition.
Understand how angels work – Most angels invest in groups and put relatively small amounts of investment into a large number of opportunities. Although you might be lucky and get a single angel to invest the full amount, this is extremely rare. It is therefore important to tap into existing networks of angels who will trust each other’s judgement in backing your startup.
Find a lead angel – It is very important to find an angel who will lead your funding round. This angel will help set the term-sheet and will take some of the burden of dealing with multiple investors. Pick someone who brings credibility with their reputation in your sector. They will also often bring an established network of contacts, including co-investors and potential clients
Use multiple channels – Explore all the obvious channels. These can include angel networks, funding platforms and successful entrepreneurs who have sold businesses in your sector.
Get referred – It is often easier to approach a potential angel through a trusted third party than directly. Angels are often sitting on a large pile of business plans and look to third parties to filter the best deals for them.
Ask for advice – It is a truism that; ‘ask for investment and you will get advice and if you ask for advice you will get investment’. The indirect approach is often more engaging and will usually deliver better results. Follow this approach with potential investors who you have met at networking events or with cold emails.
Remember that angels are just normal people. They come in all shapes and sizes and from a very wide range of backgrounds. Try to find out what really excites them. Many are ex-entrepreneurs who what to stay connected with the latest innovations and enjoy the thrill of investing with friends and colleagues. You will greatly increase your chance of getting investment by understanding their drivers and adjusting your approach accordingly.