An angel investor is an individual who invests his or her own money into a business. As a startup founder, you will not always have the capital necessary to make it to the next step or even to start your business in the first place. Unlike traditional investors, they invest their own money, and, therefore, usually want more involvement or stake in the business than other types of investors would.
As an entrepreneur, securing an angel investor is usually the best choice, especially if bank financing is not an option. It’s okay to be skeptical about angel investors, but the following steps will help you understand them and illustrate how you can find the right one for your business:
1) Know what (who) you’re looking for
Ensure that you are pitching to the right angel investors. Look for the ones who have specific interest in your industry, as they will appeal to your business ideas and be most likely to invest. Doing your research will make it worth your time and theirs.
Before you start your search for an angel investor, you need to know what you’re looking for – most angel investors:
- Invest in more than one company
- Have a network of other angel investors
- Have had entrepreneurial success in past or current business investments
- Remain involved in businesses they invest in because they use their own money
- Choose businesses to invest in based on passions or personal interests
- Understand that it may take a few years for their investments to pay off
- Are willing to wait for success and/or profits
- Stay close to home so they can remain involved and reach out at any time
- Can be your friends and family
2) Know where to look (aka Networking!)
It may be overwhelming to search for angel investors, as you may not know where to look or how to properly approach them. There are online resources you can use to facilitate the process: websites such as Angel Capital Association, Funding Post, and Gust, are reliable sources to start the search for angels in your area.
There are also events and conventions held around the country for angel investors and entrepreneurs to meet and network. These events offer the opportunity to pitch your ideas to hundreds of angel investors looking for promising startups. The most popular of these events include 2018 University Startups Conference & Demo Day, ACA Summit, and Startup Grind, which runs monthly events around the world.
3) Grab their attention and make the pitch
Many hustlers like you are looking for their initial funding, so these investors receive a multitude of requests from thousands of startups and, therefore, can initially be difficult to reach. In order to stand out, you have to make an impressionable pitch. You need to think, “how will this person remember me out of all the other entrepreneurs?” You need to tell a compelling story and engage your potential investors.
Another important aspect of giving the pitch is keeping all information relevant and getting to the point quickly. The worst thing you can do is present your investors with a lengthy, drawn-out presentation that leaves them watching the clock, rather than focusing on your idea. Most investors are busy people, so take note of this helpful 10/20/30 rule for giving a pitch, as posted by Forbes:
- No longer than 10 slides
- No longer than 20 minutes to read
- No smaller than 30-point font
4) Know your numbers
The first thing that angel investors will do after you’ve made your pitch is look at your numbers in detail. You should the take time to figure out your profit margins, gross profit, sales, expenses, income statement, and balance sheet. Plan for the outcomes of different scenarios, depending on variables such as time, discounts, and interest rate. According to Barbara Clarke, a social entrepreneur and angel investor of Astia, in her interview with Inc.com, a key step in the process of securing an investor is to “give some thought to economic terms that make sense for you and make sense for your potential investors.”
5) Be Prepared for Questions
According to Patricia Fletcher, an executive board member of Inc.com, “angels want to make sure they are protected. They will scrutinize your term sheet to ensure that you are who you say you are, that your company is what you say it is, and that you own the legal rights to IP and the ability to use that IP as stated in your business plan.”
After you have spent considerable time going over the details of your business, you will also automatically be able answer questions about your startup confidently and thoroughly. Showing confidence and certainty in your responses will evoke confidence in your business from potential angel investors.
6) Follow up and be patient
If all goes well and you’ve found yourself an angel investor, trust the process and don’t try to rush it. Though this process has probably already taken ample time and effort from you, it may take more time for your new investor to work out the legalities and details of the investment before you proceed. This is a good thing: give your investor appropriate time and space. Don’t expect him or her to drop everything and whip out a check right then and there.
Finding an angel investor may seem like a nearly impossible feat at first, but with some patience and insight, it can be one of the best decisions for your startup. Securing an angel investor not only raises capital, but also raises awareness about your business and could even lead to more substantial investment offers in the future.