Are you looking to grow or scale your startup business?
Have you got a big order on the cards and need the funds to fulfil it?
Perhaps you want to develop new products and services, and require a cash injection to make it a reality.
If you require funding for your business, one option is angel investment.
But that might leave you with the question, how to attract angel investors for my startup?
In this article, we highlight what’s required so you’ve got the best chance of finding investors and getting the funding you require.
Here’s what we cover:
What is angel investment?
Angel investment is a process by which a private individual or investor puts money into a business in exchange for ownership equity.
Angel investors go by many names, including seed investors, private investors, angel funders and informal investors.
The term ‘angel’ comes from the early days of the Broadway district in New York City when wealthy individuals who often helped raise money for theatrical productions were called angels for saving the shows.
In business, a good example of a well-known angel investor is Mark Cuban, the owner of the Dallas Mavericks, a tech pioneer, and a major media investor worth an estimated $4.6bn.
Angel investors inject funds into promising startups that need capital to get off the ground.
The amount offered by angel investors can range from five to six-figure sums, but can even reach the millions depending on the business proposition.
Angel investors may sometimes form networks called angel groups, where they combine their resources and invest in promising businesses as a group.
Pros of using angel investment
There are many benefits of partnering with angel investors, including the following:
- They provide alternative funding to loans from banks and other financial institutions, which are sometimes hard for new businesses to qualify for.
- They may provide entrepreneurial expertise, coaching and guidance to help your business succeed.
- If your business growth is evident, you can establish a long-term partnership with angel investors, which might make it easier to win further financial support beyond the early stage investment.
- With angel investment, you don’t have any debt to pay since you give away part of your company equity or shares in exchange for capital instead. Some angel investors offer loans that are later converted into ownership equity.
Cons of using angel investment
The potential downsides of angel investment that you should consider include:
- As industry experts/shareholders, angel investors may have a different opinion or approach to your business goals and decisions, which may clash with your preferred business growth trajectory.
- Their expectation of seeing a return on investment (ROI) on the dot can put pressure on you and your team.
- While you exchange your company’s equity for financial investments, you – to some extent – dilute your ownership and limit intuitive control over your company.
What do angel investors look for in a startup?
Angel investors often go beyond your pitch to evaluate the long-term sustainability of your business before transferring the funds.
Here are a few of the most important things angel investors want to see before they invest in your venture.
A business that’s easy to understand
The angel investment industry has become quite competitive. Private investors are in high demand, so don’t expect anyone to spend their time on a startup that has a vague or unclear business idea.
Angel investors are looking for clearly defined and viable business ideas with the potential to offer a good return on investment.
Similarly, angel investors are more likely to invest in businesses with a good reputation. Getting funding is hard if, for example, your business is prone to legal troubles along the way.
You also need a solid contingency plan for your business. It’ll demonstrate to potential investors how your business is prepared to face any economic or global challenges that may arise.
A strong leadership team
Angel investors are more likely to invest in a startup with a strong management team.
You’ll need to demonstrate that you have a robust team behind your company when attracting angel investors.
Investors are looking to invest in companies that are managed by people who have the right expertise and experience in the relevant industry.
The management team should be proficient in diverse areas of business, including product or service development, marketing, sales and accounting.
Your team should also demonstrate high levels of competency and trustworthiness. A solid leadership team will create a positive impression in the angel investor’s mind.
Clear financial projections
Angel investors need clear financial projections demonstrating how the business is expected to perform, alongside how their investment is expected to grow and generate good returns.
Therefore, you’ll need credible financial projections before sitting with your angel investor.
Be realistic about your valuations. If possible, consider hiring the services of an accountant to help you create and present your financial projections.
A strong and viable sales pipeline
Angel investors want to know if people are willing to buy what your business sells. They’re looking for proof that you have a large potential market.
Consider providing a record of sales you have made so far and showing your potential investors how you plan to build and expand your sales pipeline, generate more income and scale the business.
Remember that, industry experts or not, angels investors are keen to see a well-executed sales pipeline. They’ll also want to see how your products or services stand out from the competition.
How to attract angel investors
Angel investors do a lot of due diligence before handing over any money.
But how do you attract them? Some top considerations are:
Present a convincing elevator pitch
An elevator pitch is a strong introduction often presented in the shortest time possible (or the time you’d take to ride an elevator).
It’s a personal introduction you use to communicate what your business is about and how it will add value.
To boost your chances of success, it must include:
- A quick personal introduction that includes your name, your business and your position in the company
- The problem your potential customers are having and how your business idea will solve the problem
- The exciting market opportunity and how you plan to seize it
- The competition and how you plan to overcome it
- Your important business milestones and achievements
Have a strong and clear business pitch
Angel investors invest in businesses that provide financial rewards.
Your business pitch must give them a clear understanding of your business model, an overview of your financial projections, how much money you’ll need, how you plan to use the funds, and a strategy that details how the investor will get their money back with a profit.
In addition, describe how you intend to overcome challenges and risks that your business could potentially encounter in the future.
Present all of the information clearly and concisely.
One important fact to remember is to keep the pitch tailored to the investor’s preference and interest. Researching their background (previous investments, risk tolerance, etc) will help you connect and resonate with them better.
Find the right investors for your business
Angel investors can play a major role in the success of a fledgling business. However, not every investor will fit your type of business.
You need to research and find an angel investor who shares your goals and vision for your company.
You also want to partner with a trustworthy investor with a good track record of successfully supporting other companies.
A good angel investor should provide capital and useful connections and other resources you need to succeed.
Also, do your due diligence and check that the investor is financially capable of supporting your business growth plans, especially if you’re looking for a long-term partnership.
Have a comprehensive business plan
A good business plan is important when you want to get angel investment for your company.
Make sure it includes your business model, financial projections, marketing strategy, management team and details of how you plan to conquer the market amid the existing competition.
The plan should also indicate how you plan to scale the business over time.
Angel investors look for realistic, serious and detailed business plans. They’ll also want to see how committed you are to it.
Create a strong network
If you’re looking to attract investors, one way to do that is to create a strong network. And it can work in two ways.
On the one hand, as you build your network, people within it might be able to introduce you to angel investors they either know or have worked with.
On the other, you could find that an investor reaches out to you after hearing your story from a mutual acquaintance.
So use your personal network to showcase your business and its potential to grow to angel investors.
You can take advantage of many networking opportunities to meet investors and grow your connections, including at business conferences and events, and online channels too.
And besides helping you meet angel investors, networking also connects you to other existing businesses you can learn from.
Final thoughts on attracting angel investors
Angel investors provide a great opportunity for businesses to get capital and support from expert advisers. And modern technology is making it easier to locate, meet and pitch to angel investors than ever before.
If you have a solid startup idea, it’s worth reaching out to reliable angel investors to help you get your business off the ground.
But clearly understanding what angel investors look for in a business and how to attract them before you send your first investment pitch is also important.
Remember, angel investors aren’t only financiers but mentors and advisers too. They’re people with the funds required to help startups like yours succeed.
So follow the steps in this article, work on your pitch and make sure your business plan is sound to increase your chances of attracting angel investors that will provide the funding you require to help your business thrive.