S Before You Approach Angel Investors
Youve done your research and prepared a shortlist of investors you can get in contact with? Now is time to do a little preparation before you actually speak to them.
From preparing your pitch deck to rehearsing questions, there are 4 different things you must do to be best prepared. Heres our step-by-step guide below:
How To Find An Angel Investor
by Mike Price | Updated Aug. 5, 2022 – First published on May 18, 2022
Back in the olden days , a theater term was applied to finance, and angel investing was born. As far as I can tell, this is the one and only time that theater and finance have merged, at least outside of one semester of college when I took an acting class.
On Broadway, wealthy individuals who dropped in to support floundering productions that otherwise would have been shut down or never even started were called angels. Likewise, wealthy individuals who support startup businesses that havent matured enough for venture capital funding are called angels.
Angel investing these days is sometimes done by celebrities such as Ashton Kutcher, Will Smith, and Jay Z. Maybe there is something to this finance and theater thing.
What Kind Of Professional Experience Does The Angel Investor Have
An angel investorâs guidance can have an even greater impact on your business than their cash. Theyâll also provide the most meaningful advice if they have experience in your industry.
Hopefully, the angel investor can help fill âholesâ in your teamâs skills or expertise, too.
Think about whether the angel investor can bring skills to the table that your team lacks â whether thatâs operations, financial management, manufacturing, or other areas.
Their contacts and reputation are also important. If theyâre well-connected, they can help build business relationships, find executives, or attract other investors.
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Preparing For Angel Investment
Before you begin searching, make sure your startup is ready for angel investment. One way to impress potential angels is to invest early in an advanced unified communications systemthis will help your small startup look like a much larger company to outsiders.
It will also let investors know that you have the best tools in place for your employees to collaborate and stay connected. Plus, angels will recognize that you have the ability to scale up and securely support your customers on any channel as your startup grows.
For instance, you could use RingCentral Office®s desktop and mobile app to get your team together via video or phone calls to decide exactly what you need from your angel. You can even use the app to message each other:
And assign tasks to each other to stay organized:
In your discussions, you can talk through topics like whether youre seeking general guidance or a specific skill set, and cover questions like:
- How much money will you ask for?
- How much input will you expect?
- How much control are you willing to give up?
- Does the angel share your vision and goals?
Potential investors will want to perform a valuation of your company. Youll need to demonstrate that you have what it takes to be successfuland have a sound business plan to prove it.
Let them know that youll be willing to take their advice. If you can show that you believe in your business and its potential, then hopefully the angel will, too!
How To Choose An Angel Investor
So now you know how to find angel investors.
But itâs not a matter of reaching out to as many angel investors as possible.
You should only target investors who you think may be right for your business.
The vetting process for an angel investor is long. Do your research before you reach out to any angel investor. Continue evaluating all investors after you meet them.
This includes learning about their:
- motivations
Remember: an angel investor should be able to offer more than just cash.
The right investor should have the right experience, helpful contacts, and relationships with other investors.
Resist the temptation to rush into an agreement with an angel investor just to get a check. Angel investors usually only exit when your business is acquired or goes public. This can be at least several years. Until then, you and your angel investor will be chained together.
Not sure what you should be looking for in an angel investor?
Below are some questions you should ask before sealing the deal.
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You Just Need To Make More Progressthen Maybe Ill Invest
This is a trap. The longer you are willing to keep bootstrapping, the more you de-risk the investment for the angel. It will never end.
And if you look at the people who actually raise money, they often have literally zero traction.
You need a way to shift the odds in your favor. Join me in this 7-part course where we walk through a proven and clear process of how to incentivize investors to act quickly so you can close your round and get building.
Seed Funding For Startups
Seed funding is the initial startup funding you get for your business. It can be around $50,000 or $500,000 depending on how convincing presentation you make and the amount you require to take your business off the ground. The problem is, this is one of the riskiest investments.
Why?
Because you cant prove that your business will survive. If it survives, your investors will be able to double their money in just a few years, and if it fails, they will lose all their hard-earned money in months.
For this article, we will assume that the startup will survive. And, if it does for at least two years, you will be eligible to get series A funding.
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Plan On Drinking A Lot Of Coffee
Finding the right angel investors is going to take a lot of meetingsmore than many entrepreneurs expect. A good rule of thumb is 50 introductory meetings.
But these meetings are a great opportunity, even when they dont lead to funding. Youll also start to build a network, which will pay off big when you start to hire.As you talk to people, you’ll hone your pitch. You’ll want 90-second and 5-minute versions down solid. You should be able to cover:
- Why your company matters
- Why its relevant now
- Your team makeup
- Customer, prospect and growth strategies
How To Negotiate A Term Sheet With An Angel Investor
The legal terms of the investment are laid out in a written document called a term sheet. This is a nonbinding agreement between founders and investors that outlines the key deal terms for the funding round.
If youve never closed a round of financing before, youre likely to be terrified by the thought of negotiating your first term sheet with an investor.
There are two big mistakes you can make in a term sheet. One is to accept an unfair deal that kills your motivation or even your business. The other is to walk away from a perfectly good deal because of a small difference of opinion.
Unless you are a lawyer or have one on your team, you should use a standardised template . The reason is that you do not want to end up in a situation where there is ambiguity about what the parties agreed to.
When you are negotiating with an investor, it is extremely easy to think that you are agreeing to one thing when in fact you are agreeing to something else. Often both parties have misgivings about what they are agreeing to, but having gone so far think its too late to back out.
If you have a term sheet that captures what both parties are thinking they are signing up for, you have a point of reference. If the investor tries to change the deal, then he or she is trying to change the deal. Its better for everyone if changes happen at the beginning rather than at the end.
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Contact Businesses Or Schools In Your Field Of Work
Chances are, you already know people in a similar line of work as yours. Perhaps you can connect with them to see if they have any recommendations on who may be interested in investing in your company.
This research process might take up quite a bit of your time, as youre unlikely to find someone willing to invest, from just one phone call. In fact, you may have to call a lot of people or even attend industry events to network. But, if you keep digging, you just might be introduced to that certain someone who likes your business plan or product enough to invest in it.
Barring that, schools that offer certificates, diplomas or degrees in your field are also a possible way to reach potential investors. This is because often the professors who teach the programs invite guests in to speak on certain subjects. Typically, these guests are experts in their field. Perhaps you can see if the professors or someone in the department will reach out to these guests on your behalf, to set up an introduction.
What Is The How To Get Angel Investment Course
This is an interactive video course designed for startup founders of all skill levels. It unpacks a proven system to inject tension into a fundraising process so you can close quickly on good terms. It not only presents principles but personal stories about what happens when you follow these principles. It explicitly covers 7 topics:
- Setting Your Target Raise
- How To Find Angel Investors
- Prepping The Right Documents
- Running Investor Meetings
- How To Pitch
- How To Close
- How To Maintain Investor Relationships
Blake is a guiding light in a dark and complicated world of startup fundraising – Chase Beech, CEO Insurgrid
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Who Are Your Targeted Angel Investors
Not all angel investors are created equal. However, since the investors will be with you for a long time, they will eventually become part of your startup and be either your supporters or roadblocks.
How do you determine?
First, it can be challenging for founders to define their ideal investors. One way is to start with what kind of people you dont like.
Second, the first-time founders usually think that angel financing is all about money. But an angel investment deal is like killing two birds with one stone. Angels also offer you mentorship, network connection, and a warm introduction to VC in your next round of fundraising.
So, you list an inventory of what kinds of skills and experience you need from your angel investors.
Now you are done with your planning. If you are ready to enter the angel fundraising battleground, your next step is to develop your pitch deck.
Takeaway: What To Know About Angel Investing & How To Attract Funding Angels
Angel investments pose an exciting opportunity for young businesses to acquire funding and get support from experienced advisors. In the modern tech-driven world, finding, pitching, and following up with angel investors has never been easier.
If you believe in your startup idea, its absolutely worth reaching out to Angel Investors and asking for funding. Remember, in addition to making money, angels are interested in funding startups because they enjoy supporting smart teams developing great products.
Angels can write checks and also serve as mentors, advisors, and thought partners. There might be someone out there who is waiting for a start-up just like yours to invest in, so get out there and find your angel!
Did you enjoy our article on What to know about Angel Investors? If so, dont miss these interviews with some of our featured angel investors, startup mentors, and funding experts:
- Tim Draper Renowned American venture capital investor and founder of Draper University
- Ryan Feit CEO and Co-Founder of SeedInvest
- Karen Cahn Founder & CEO of IFundWomen
- Jonathan Medved Founder & CEO of OurCrowd | Leading High-tech Venture Capitalist
- John Ramey Angel Investor | Leading Startup Coach
- Fran Hauser Leading Startup Investor and Advisor
- Uri Adoni Venture Capitalist | Angel Investor | Former CEO of MSN Israel
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Business Potential And Return
Angel investors are looking for businesses that are scalable and able to grow. Make sure you explain upfront why your business has the potential to be significant. Avoid small ideas. Investors will want to know how much of the addressable to capture over time. The investor must believe that the opportunity has a clear value proposition, there is a large and growing market , that your solution is unique, the time to build it is now, that you and your team are the ones who can build it, and that you will make lots of money doing it. A good rule of thumb is the 7-to-1 rule: a seven dollar return for every dollar of capital an angel investor invests within seven years.
How Series B Funding Works
Companies undergoing a Series B funding round are well-established, and their valuations tend to reflect that most Series B companies have valuations between around $30 million and $60 million.
Series B appears similar to Series A in terms of the processes and key players. Series B is often led by many of the same characters as the earlier round, including a key anchor investor that helps to draw in other investors. The difference with Series B is the addition of a new wave of other venture capital firms that specialize in later-stage investing.
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Ways To Find Angel Investors For Your Startup
If youre looking to raise money for your startup, angel investors are a great alternative. Yet, angels are notoriously difficult to reach out to . In this article we tell you everything you need to know to find angel investors for your startup.
First, well look at the 5 ways you can find angels: from your own network, to Google, websites and startup accelerators.
Then, well give you tips on the 4 things to prepare before you even approach angel investors: from preparing your pitch deck, to rehearsing key investors questions.
Series Funding: A B And C
A startup with a brilliant business idea is aiming to get its operations up and running. From humble beginnings, the company proves the worthiness of its model and products, steadily growing thanks to the generosity of friends, family and the founders’ own financial resources. Over time, its customer base begins to grow, and the business begins to expand its operations and its aims. Before long, the company has risen through the ranks of its competitors to become highly valued, opening the possibilities for future expansion to include new offices, employees, and even an initial public offering .
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Angel Websites To Find Investors For Your Startup
Angel investors are highly beneficial for biotech startups who need access to early-stage funding.
Angel investors are individuals with a high net worth who have the ability to provide startups with capital in exchange for equity. While angel investors can choose to make investments in any fundraising round, they will typically provide choose the pre-seed or seed rounds of funding. This is because their investments tend to be in the tens to hundreds of thousands of dollars rather than millions, so investing early means they can get the largest percentage of equity for their money.
Learn about: Funding Options for Biotech Startups
Angel investors are highly beneficial for biotech startups who need access to funding in the early stages of growth. If you are focused on research and development to reach proof-of-concept, you might be too early for most venture capital firms. Angel investors, however, tend to understand these earliest steps in the forming of a company. After friends and family funding, angel investors are the next most accepting of risk in an investment. They are often retired executives who are interested in staying involved in the industry they worked in. By investing in startups, they can continue to put their experience to good use.
Watch this 2-minute video to learn about different types of Angel Investors from Snell & Wilmer Partner, Bardia Moayedi.
Read: What are Angel Investors and Does Your Startup Need One?
What Do Angels Investors Expect From You
Your pitch will need to cover the following key areas to look appealing to an angel investor.
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