ven if you have a revolutionary and innovative idea, raising money for your startup can still be a difficult and challenging ordeal. To add to that, you also have to achieve product market fit, build a winning team, develop a functioning product, build your sales pipeline, and much more. It’s a known fact that around 90% of startups fail.
But you can simultaneously solve your capital woes and increase your chances of success by partnering with a seasoned angel investor.
But it’s not as easy as just emailing them, or calling them up on the phone. Angel Investors are busy, with many things competing for both their attention and their money.
So how do you increase your chances of attracting Angel Investors? In this post, we’ll discuss six ways to attract Angel Investors with the hopes of them investing in your startup.
Startup Genome points out that only 1 in 12 entrepreneurs establish a successful startup. Thankfully, you can simultaneously solve your capital woes and find direction with your startup by partnering with an angel investor. Simply put, an angel investor is a high net worth individual who invests in organizations that they believe in and help them find long-term success.
Understanding Angel Investors
Before we dive into our 6 tips for attracting them, we must first understand Angel Investors, their motivations and how they differ from venture capitalists.
While both Angels and VCs require you to give up equity in your startup, there are some key distinctions between angel investors and venture capitalists. Understanding some of these key differences might help you make a more well-informed decision.
An angel investor is an individual—often a high-net-worth business professional or former founder themselves—who uses their own money to invest in companies they believe have growth potential.
On the other hand, venture capitalists use institutional money from various sources, ranging from pension funds to investment firms.
Another important difference lies in the average amount of equity financing. Most angels provide funds anywhere between $15,000 and $500,000, while VCs on average, fund investments of $2 million and upwards.
So now that we have at least a basic understanding of who an Angel Investor is, and what their motivations might be, let’s dive into how to successfully attract them and increase your chances of getting a check from them.
Polish your pitch
In our post ‘What to Look for in a Founder Pitch’, we mentioned that a good pitch should contain all the necessary information and provide the investor with a 360 degree view of your startup. So after creating a thorough and meticulous business plan, you should identify what makes your idea valuable and your startup worth investing in. Also it’s important to highlight what they will gain from investing in your business.
Always remember that most of the angel investors are successful entrepreneurs who have plenty of surplus money in their bank accounts. They are already wealthy enough and do not need extra money to sustain their lavish lifestyle. They just want to hear an idea and want to invest their money for the idea that gives them a thrill.
Have a Squeaky Clean Business Image
Angel investors are more inclined to invest in startups that have a good reputation. Of course, businesses that deal in shady industries such as gambling or have a history of legal troubles don’t have a chance when looking to gain a stable financial backer.
For this reason, you should have all your legal records on hand and be prepared to answer questions from various legal standpoints. It also pays to consult with a trusted lawyer to make sure that your business idea doesn't have any legal implications.
Also, have a contingency plan.
Angel investors want to make sure that they’ll get a return on their investment and that your startup will be successful. However, various economic and global crises threaten the stability and upwards trajectory of every organization in operation right now. Take the recent global crisis for example. FXCM notes that the COVID-19 crisis has prompted a historic economic downturn, initiated social unrest, and caused a 7.3% increase in unemployment in developed countries. Because it can be hard to anticipate these kinds of global events, your startup should have a contingency plan in place.
A contingency plan can help your startup attract angel investors as it signifies that your startup is prepared to face difficult challenges ahead. In order to make a comprehensive contingency plan, be sure to prioritize your resources and identify your biggest risks. In addition, Inc advises that you should brainstorm with your team to come up with effective prevention mechanisms. By ensuring that your contingency plan is exhaustive and well thought out, you show angel investors that you’ll do what it takes to complete your end of the bargain and ensure that your startup will stay afloat during tough times.
Forge a Strong Network
You can never meet enough people. If you have opportunities to go to business events, conferences or mixers -- go. And, don’t just look in the obvious places.
Aside from being a way to meet angel investors who are looking for startups with big ideas, networking with other reputable businesses and startups can also help you show how dedicated you are to growing your organization.
This is because networking is essential for finding the right resources — from raw materials to finding talent to join your team. In other words, having a strong network is crucial in gaining increased access to the various resources that you need to help your startup flourish.
By showing angel investors that you’ve forged a strong network, you prove to them that you’re willing to go the extra mile to ensure your startup succeeds.
Build a Reliable Management Team
Angel investors are also keen on supporting startups that have robust leadership. You want investors to know that your organization is in the hands of people who have the right experience, are competent, and are trustworthy.
A solid management team of people who have proficiency in different aspects of business like marketing, sales, manufacturing, managing people and accounts creates a positive impression on investors’ mind. Leadership is what ultimately decides the future course of action for any enterprise.
Present a Strong Sales Pipeline
There is no business without sales. Investors must be convinced that people are willing to buy your product or services. Your product or service must stand out from what’s already being offered in the market. Your differentiators should be easily identifiable when explaining the sales process to investors.
Be prepared to prove to investors that your market potential is large enough to warrant an investment. Provide a track record of sales you’ve already made (breaking down the number of prospects at each stage in the buying process) and show how you plan to continue to expand your pipeline to grow the business and generate revenue.
Create Credible Financial Projections
It is necessary to build logical financial assumptions and projections to show angel investors that their initial investments will grow and return. No investor will provide funding based on excitement only — even if you have a disruptive idea and promising product.
To make a credible financial projection, consider employing the services of a trusted accountant. An accountant can present your financial projections as high-level assumptions, which will give investors confidence that your business has the capacity to to scale and grow.
Remember that your financial projections must be grounded and based on reality. Angels are impressed when entrepreneurs know their numbers inside and out and are realistic about their valuations.
There you have, six ways to set yourself up for success when looking for Angel Investors. However, reader beware, raising angel capital is a tough process. You will fail more than you will succeed.
Stay persistent and if you believe in your business, it will happen!
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