For entrepreneurs looking for investment, but unsure where to start, angel investors are a popular first port of call. For some of these entrepreneurs, it’s because angel investment implies a more personal relationship between the money and the business.
But with a more personal funder-founder relationship comes the need for a much more specific pitching process. Many VC firms have a strict process for finding investment or being approached. With angel investors, this isn’t the case, and what may work well for one angel may result in a mishit with another. As a result, many entrepreneurs don’t know where to start, or how to approach an angel investor.
Use your network
One of the most common ways that businesses go from idea to product is with the help of friends and family. This is often the easiest way to get investment as these are people who know you and trust your judgement. Jeff Bezos famously founded Amazon after his parents invested in his idea, and Tesla’s Elon Musk was able to get his first business venture – which he eventually sold for over $300m – off the ground due to a loan from his father.
Investors must have confidence in the founder as much as the quality of the idea before they invest, so close acquaintances will often be a more attractive investment for angels than founders who have approached them cold. However, early-stage businesses are always risky, so it would be ill-advised to seek investment from a friend or family member unless you know they can afford to lose money if the worst comes to the worst.
There is a lot of value in seeking out groups of like-minded entrepreneurs to share ideas and experiences with. There are many founders out there, each with a unique journey, and networking represents an opportunity to learn from other people’s mistakes and to pick up valuable tips from founders who have had previous success seeking investment.
Networking goes beyond friends any family, however, and can include people you have met professionally. I invested in a startup in the past where I had only briefly worked with the individual in a different context, but this was enough to have followed what they were doing and for my interest to be piqued by their idea.
Do your research and target the right people
Angel investors don’t part with their money easily, as you might expect. They rightly want to feel as if their capital is being injected into a business run by someone who is informed, prepared and enthusiastic. If you haven’t done your research, an investor will know immediately.
Look at similar businesses to yours: those that have taken a similar road or offer a similar service or product. Tools like Crunchbase will help you to find out who has invested in these businesses and create a shortlist of people who have the right profile for your needs.
Look too for someone whose personal philosophy and interests align with yours. Maybe an investor puts money into startups with a certain business model, an industry sector, or a social cause.
Time constraints are also an important reason to double down on your research efforts. Pitching can be a full-time job, and is particularly hard if you’re running a business. For many, time is a luxury, so use it carefully by putting in up-front effort to ensure that each investor you approach is relevant to you.
It works both ways: companies raising investment often are looking for angels that will bring more than just cash. If you know that an angel investor’s expertise in marketing is going to be a key area for you then look for angels who can add that. If, for example, introductions to B2B firms in a certain industry is fundamental to your success than an angel with these contacts could be invaluable.
LinkedIn can help you strengthen your connection with someone you’ve already met. Twitter can help you to find who is in a similar situation to you, and who is writing about a given subject. You can reverse engineer the paths already taken by successful entrepreneurs to learn more about the investment process.
Even if you don’t have a warm introduction to someone, a well-crafted email explaining why you think they might be interested in your business and why you are interested in them could make all the difference.
In short, the more research you do, the greater your chance of success.
Apply to angel groups
Angel groups are a highly effective way of finding and getting investment because they introduce you to multiple angels at the same time. Potentially saving time in terms of intros and pitch meetings. They may also add additional value such as feedback on your pitch and investment deck. There is often a charge for going through angel groups but this can be worthwhile. Many angel groups are tailored to a specific type of entrepreneur or a business. Investing Women and Angel Academe, for example, pay particular attention to startups founded and run by women.
Often, angel groups have an online application form, which means that no introduction is necessary. That isn’t, however, an excuse not to do your research. Always look at the prior investments of a group and see if it’s the right fit for you, and take time over your application.
As the saying goes, practice makes perfect. Look online for opportunities to pitch or even just to watch others pitch. Often, co-working spaces or meet-ups will have organised pitching sessions, where founders can pitch to one another and hone their message. You never know who will be in the room. For example, I sat on a panel of investors at a free pitch event at Croydon Tech Hub.
In the early days of my app, amicable, my co-founder and I watched many pitches just to see what techniques worked most effectively. In some cases, you only have one shot at convincing an angel investor that your business is the best choice for them to invest in.
If approached badly, seeking angel investment can at times be draining and demoralising. But equally it can be a hugely exciting time: a time for you to make long-term connections, develop your skills and learn more about the sector. With the right attitude and the right approach, you will find the right angel investor for your business and be able to move on to the next stage of turning your ideas into reality.