In previous newsletters, I discussed the difficulties in getting bank small business loans in this economic climate, and although angel investing has slowed compared to previous years, it can be a great way to raise startup capital for your business. An angel investor, by definition, is a person who invests his or her own money into an entrepreneurial company. The term “angel” was originally used to describe investors in Broadway shows, but has since been expanded to business in general. Unlike institutional investors like venture capitalists who invest other people’s money, angel investors are generally involved in the very early stages of a company and because they invest their own personal money, a typical angel invests less than $1 million. Below are some considerations when preparing to approach angel investors.
Have a Plan
It is imperative to do your due diligence up front. Map out how much money you want to raise, do your homework on the types of investments being made in similar companies and anticipate how many investors it will take you to reach your goal. Having this plan at the outset will ensure you can move forward as quickly as possible, and you can’t sell angel investors on your goals if you do not have a clear vision of what they are.
Where to Find Angel Investors
Since angel investors are “informal” investors, there is no comprehensive list or registry of angels. Some angels have come together to form “angel funds” and may have a website and information on where you can submit a business plan and make a pitch. More likely than not, however, you will need to look in your own personal network and those of friends to find investors. Make contacts with people in your industry and understand which angel investors are ideal for your company and its lifecycle stage. Some angels invest in companies that have little more than a business plan and an idea. Others want to see a prototype of the product and real world customers willing to test it out. Once you have a list of potential targets, it is vital to understand an angel’s expectations. Be sure you and the angel(s) are on the same page when it comes to exit strategy and expected ROI.
It’s Not Just About the Money
Angel investors are valuable not only because they bring capital to early stage companies. Many angel investors are or were entrepreneurs and successful business owners, and they often are willing to share valuable industry knowledge and contacts. Establishing a solid relationship with your investors is important because angels may be well-connected and can assist with additional rounds of funding. Many angels want to be actively involved in the overall business operations, so chemistry with your angels is at least as important as the money they bring in. Even for angels who just want to be passive investors, you should provide monthly updates letting them know the status of the company.
Do Not Give Up
Finding investors at any stage of a company’s lifecycle can be a long and rejection-filled process, particularly in this economic climate, which is why persistence is important. Whenever possible, request feedback from angels unwilling to invest. Maybe you just need a better prototype or a more thorough business plan, or maybe they think you have a lot of work to do before you should approach more investors. Heed their advice and keep them updated on your progress. It is possible that with the proper corrections, an angel investor may take a second look and invest after all.