Angel investors are in many ways vital to the success of a startup or entrepreneur's idea. They can inject much needed seed or early stage funding to catalyze growth and success for founders and entrepreneurs. Having angel backing can set you up for future venture capital funding as well.
However, finding and dealing with angel investors can prove a bit challenging. There are less than 300 angel investors actively investing in startups with only about 60,000 investments happening per year. In fact, angels fund less than a percent of all startups.
With that being said, angel investors do play a major role in startup growth. They actively seek founders and entrepreneurs with marketable products and services previously untested. This makes them a more attainable funding option than banks or small business lenders.
Angel Investors love the opportunity their investments can provide. For founders and entrepreneurs, partnering with an angel has monetary benefits, as well as serving up unprecedented knowledge and industry networking opportunities
The following serves as your roadmap to finding and dealing with angel investors to help bring your vision to life.
How to Find Your Angel
Finding an Angel Investor may be a little easier than you think. There are a number of places online and in your community to draw angel investor attention from. From online angel platforms to conferences, here are a few places to find your first angel:
- Online Angels: Are you spending countless hours on LinkedIn sending potential angel investors messages in hopes of starting a conversation about your startup? This is common, and not a horrible strategy, but there is an easier way. Online sites, like the Angel Investment Network or Gust can help you land an angel easier.
- Angel Events: You can take your angel investor search offline as well. There are plenty of angel events around the U.S. to help you make a meaningful connection with an investor as passionate about your startup or entrepreneurial endeavor as you. Startup Grind and the Angel Capital Association Summit (ACA) are all great events to start a conversation about your startup.
Dealing with Angel Investors
After you have made a few angel connections, it is time to start the conversation. One faux pa of dealing with angel investors is to cold pitch them in a conference elevator, at a coffee shop, or via long email. This is borderline stalking, and not a great way to attract attention for your startup.
There is a bit of tact involved in pitching your startup and asking for funding. Before you even start looking for an angel, have a pitch strategy ready to go, because just rambling on about your product or service, and how great it is, won't get the deal done.
A few pitch-ready ideas to have at the ready when dealing with an angel investor include:
Your unique story, because angels love a great entrepreneurial story that inspires them. Engaging an angel from the heart is the best way to get them interested.
A high-level of confidence to get the job done, since angels are entrusting you with thousands of dollars to be successful. They want to know you are the founder that will leverage their investment for the best possible ROI.
Current profits and future projections with the backing an angel investor can provide. Be sure to have an exact number in mind that you know will have an impact on your startup. An exact figure will show an angel you have done your homework.
Concise information that doesn't beat around the bush, because angel investors are busy and don't have time to listen to a two-hour pitch. A pitch should be no longer than 20 minutes, and that is pushing it.
Be Prepared for an Angel Interrogation
Maybe interrogation is a bit over-the-top, but as a founder or entrepreneur, you should be ready to field the borage of questions an angel will ask. Questioning can be about marketing plans, financial information, and even questions about you and your team.
Financial questions include:
How much capital do you need, and how long do you expect it to last?
What are your financial projections and growth rate for the next three to five years?
What are the major costs involved with bringing your product or service to market?
Is there any potential unforeseen expenses involving production?
What are the projected gross margins with this investment?
Startup team questions include:
Who are the main founders, partners, and team members?
How many employees are there (HQ and outsourced)?
What is the combined experience of the team (tech, industries, etc.)?
Are their team growth needs in the coming two years?
Why are you a good founder?
What additional skills are needed to grow the team?
Marketing questions include:
What is the marketing and PR strategy?
Is there a social media strategy in place?
What are the analytics of these strategies?
What is the cost of the customer acquisition?
How will you boost marketing and PR with the investment?
What is the current customer lifetime value?
Don't be offended by the direct nature of these types of questions. An angel investor is exposed to a variety of risks when investing in a startup. They are simply trying to mitigate these risks as quickly as possible to move the potential partnership forward in an expedited, powerful way.
What Does an Angel Investor Want?
Landing an angel investor provides you with a stellar opportunity to fund your startup to success. However, angel funding isn't free. When partnering with an angel, it is important to know that the investment has a few strings attached.
For example, an angel investor may want equity in the company. This could be a high percentage, or a meager one, depending on the agreement you have with your angel.
Giving up equity in your startup means that you are no longer the sole decision maker. Some angels are hands-off investors, but some want to be involved in some way to ensure they are going to get a satisfactory ROI.
Having an involved angel isn't necessarily a bad thing. They have the industry knowledge and the connections that can facilitate growth much faster than if you are making decisions alone. The negotiation stage is important, so be sure to know that angel investments are certainly not free.
Find Your Angel Today
Finding and dealing with angel investors is an exciting moment for any founder or entrepreneur. Just be sure to do it the right way. From being pitch ready to knowing what angels will ask, have a strategy in place to land your first angel with ease. Have you had success in getting angel investor funding? Tell us your secrets!
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