Business 12 August 2018
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!
From Your Site Articles
3 Min Read
"How did you ever get into a business like that?" people ask me. They're confounded to hear that my product is industrial baler wire—a very unfeminine pursuit, especially in 1975 when I founded my company in the midst of a machismo man's world. It's a long story, but I'll try to shorten it.
I'd never been interested to enter the "man's" world of business, but when I discovered a lucrative opportunity to become my own boss, I couldn't pass it up—even if it involved a non-glamorous product. I'd been fired from my previous job working to become a ladies' clothing buyer and was told at my dismissal, "You just aren't management or corporate material." My primary goal then was to find a career in which nobody had the power to fire me and that provided a comfortable living for my two little girls and myself.
Over the years, I've learned quite a few tough lessons about how to successfully run a business. Below are five essential elements to keep in mind, as well as my story on how I learned them.
Find A Need And Fill It
I gradually became successful at selling various products, which unfortunately weren't profitable enough to get me off the ground, so I asked people what they needed that they couldn't seem to get. One man said, "Honey, I need baler wire. Even the farmers can't get it." I saw happy dollar signs as he talked on and dedicated myself to figuring out the baler wire industry.
I'd never been interested to enter the "man's" world of business, but when I discovered a lucrative opportunity to become my own boss, I couldn't pass it up.
Now forty-five years later, I'm proud to be the founder of Vulcan Wire, Inc., an industrial baler wire company with $10 million of annual sales.
Have Working Capital And Credit
There were many pitfalls along the way to my eventual success. My daughters and I were subsisting from my unemployment checks, erratic alimony and child-support payments, and food stamps. I had no money stashed up to start up a business.
I paid for the first wire with a check for which I had no funds, an illegal act, but I thought it wouldn't matter as long as I made a deposit to cover the deficit before the bank received the check. My expectation was that I'd receive payment immediately upon delivery, for which I used a rented truck.
Little did I know that this Fortune 500 company's modus operandi was to pay all bills thirty or more days after receipts. My customer initially refused to pay on the spot. I told him I would consequently have to return the wire, so he reluctantly decided to call corporate headquarters for this unusual request.
My stomach was in knots the whole time he was gone, because he said it was iffy that corporate would come through. Fifty minutes later, however, he emerged with a check in hand, resentful of the time away from his busy schedule. Stressed, he told me to never again expect another C.O.D. and that any future sale must be on credit. Luckily, I made it to the bank with a few minutes to spare.
Know Your Product Thoroughly
I received a disheartening phone call shortly thereafter: my wire was breaking. This horrible news fueled the fire of my fears. Would I have to reimburse my customer? Would my vendor refuse to reimburse me?
My customer told me to come over and take samples of his good wire to see if I might duplicate it. I did that and educated myself on the necessary qualities.
My primary goal then was to find a career in which nobody had the power to fire me and that provided a comfortable living for my two little girls and myself.
Voila! I found another wire supplier that had the right specifications. By then, I was savvy enough to act as though they would naturally give me thirty-day terms. They did!
More good news: My customer merely threw away all the bad wire I'd sold him, and the new wire worked perfectly; he then gave me leads and a good endorsement. I rapidly gained more wire customers.
Anticipate The Dangers Of Exponential Growth
I had made a depressing discovery. My working capital was inadequate. After I purchased the wire, I had to wait ten to thirty days for a fabricator to get it reconfigured, which became a looming problem. It meant that to maintain a good credit standing, I had to pay for the wire ten to thirty days before my customers paid me.
I was successful on paper but was incredibly cash deprived. In other words, my exponentially growing business was about to implode due to too many sales. Eventually, my increasing sales grew at a slower rate, solving my cash flow problem.
Delegate From The Bottom Up
I learned how to delegate and eventually delegated myself out of the top jobs of CEO, President, CFO, and Vice President of Finance. Now, at seventy-eight years old, I've sold all but a third of Vulcan's stock and am semi-retired with my only job currently serving as Vice President of Stock and Consultant.
In the interim, I survived many obstacles and learned many other lessons, but hopefully these five will get you started and help prevent some of you from having the same struggles that I did. And in the end, I figured it all out, just like you will.