When trying to get your startup off the ground, having someone who is able to guide you through the ups and downs is priceless. Angel investors play a crucial role, providing not just knowledge and helpful tips but the capital needed to kick-start your journey.
According to recent estimates, angel investors help more than 70,000 startups grow with around $25 billion each year.
Who are these angels?
According to the Angel Capital Association (ACA), angels are usually high-net-worth individuals who invest money in startups to get an equity share of the business. It is highly recommended to work only with accredited investors who add value to the business by providing high-quality mentoring and advice.
Angel investors are often former entrepreneurs who make investments for different reasons, including:
— a killer opportunity for investors to work with businesses that can exploit the market with lucrative results;
— chance to diversify assets as for many investors the bulk of their portfolio is in stocks and shares;
— to have a positive influence socially or environmentally.
Are you angel ready?
Getting capital from angel investors is not for every business owner. Before getting you startup funded, ask yourself the following questions:
— Am I ready to give up some ownership of my company?
— Can I demonstrate my company’s ability to make significant revenues and earnings in the next three to seven years?
— Can I demonstrate my company’s ability to produce a significant return for investors?
How much will angel investors want from your business?
Typically, angel investors want to receive between 20% and 25% return on the money they invest in your company. However, how much you should pay angel investors depends on your contract. Hammer out these details before investors give you any money and have a lawyer draw up a contract to feel safe about your startup being funded.
When to approach an angel investor
Angel investors are usually more interested in funding startups and early-stage companies than banks or venture capital companies. Here are the signs it’s time to approach an angel investor:
— Your product has been developed or it’s about to be developed
— You have an existing customer base or potential customers
— You can demonstrate and prove that your business is able to grow rapidly
How to find angel investors
One of the best places to find an angel is an angel group. You can also start by looking at the ACA’s member directory.
Find other entrepreneurs who’ve been funded and ask for their recommendations.
Go to funding and business-focused events and network with people.
Look for relevant speakers and publications.
Be active in your community to find good mentors.
The most popular websites to look for an angel are:
To find the right angel, you need to know exactly who and what you’re looking for. Keep in mind that it’s not just about funding, but also about mentorship, support, and general guidance. Don’t just look at angels as a money source. Look at what angels can provide you besides money—advice, help, and experience.
How to choose an angel investor
To make sure an angel investor you’re considering to work with is a good fit for you and your startup, ask yourself these questions:
— Does this person have in-depth knowledge about my industry and type of business?
— Does this individual have a successful track record growing a business from start to finish?
— Does this person share my values?
— Will this person provide insights on how to scale my business?
— Does this person have enough money to get my business idea off the ground?
Prepare for the pitch
A trap that many startup founders fall into is going into too much detail about the idea behind their business. This is important, but the main goal of pitching is to articulate the commercial opportunity behind it.
It is crucial not only to explain what you are going to achieve with your business but also to be clear about the value it will bring to customers and, thus, investors. The key bases to cover are:
- Commercial opportunity
- Competitive advantage
Although most investors have the best intentions, they can be highly subjective, so you need to show them that you really know the market and industry to educate them on the opportunities your product can provide them with. Show them not only your confidence and expertise, but your willingness to take their advice.
When it’s time to make your pitch, you need to be set and well-prepared. That means, even if your business is up and running and has customers, you still need a business plan or, at least, a roadmap to make it clear what your business goals are and how you envision them being helpful to your startup.
Your pitch should also cover what you plan to do with the money angels would be investing in your business. You need to explain how the investment will scale up the business and become more profitable sooner.
Finding an angel investor is not easy, but the effort will really pay off when you find the right person who is willing to invest in your business. Besides providing the capital your startup needs, an angel investor is the source of expertise, knowledge, and network connections shaping your company’s success.
There’s no magic formula for finding an angel investor, who will fund your business and help it grow. A decision to invest is often the result of the right combination of people, time, needs, and products. However, you can always improve your odds by doing proper research and preparing your pitch.