Business angels are wealthy individuals who are looking to invest in exciting businesses. They will normally invest in return for a share of equity in the business. Beyond cash, they often have skills, knowledge and networks that can add value to your businesses.
Angel investors look to make a series of investments as part of a portfolio and the amounts they invest can vary. They may invest alone, as part of an angel syndicate (a group of angels), or increasingly through equity crowdfunding platforms.
What Should You Look for in an Angel Investor?
Well cash to invest obviously, but they can provide a lot more. Angels with less cash, investing at lower valuations, but with the right connections, expertise and involvement could suit you more than those providing more money, at higher valuations, with little added non-monetary value.
Here are a few things you should look for in angel investors beyond simply cash:
- Experience in the industry, and, ideally, the experience of starting from scratch in that industry so that they understand challenges unique to a startup. You should also look for knowledge and skills that are complementary to yours so that they fill the gaps that you have in your own skillset. Ask yourself what are your biggest worries, and where are your biggest gaps? Then ask, how could an angel solve these problems?
- A good reputation and network can really help open up doors for you and your business, getting you access to potential clients, partners, and future investors.
- Enough cash for potential future rounds. Knowing that, should things go well, there are funds available for future rounds will give you the support you need for the longer term.
- Being a team player is important – most startups operate with fairly flat hierarchies, and someone coming in with controlling behaviour can be very counterproductive.
- Realistic expectations for your growth, and the resilience to help you get there when the going gets tough.
What are Angels Investors Expecting From You?
Your pitch will need to cover the following key areas to look appealing to an angel investor.
- Potential returns. Given the high-risk nature of early-stage equity, Angel Investors are first and foremost looking for an opportunity to make a good return. How good a return? Certainly better than they could get in the stock markets, and typically somewhere in the region of 10x over a 5-10 year investment.
- Growth potential/scalability. Delivering a good return to investors is only possible if you have a business that has serious potential to grow, and can be scaled to fulfil that potential. Does your business clearly solve a problem, and can you demonstrate that you have some early traction?
- A strong team. A great idea alone will not get you far; you need to have a team who are going to be able to execute on that idea and turn it into a reality. Having a team that can demonstrate experience and success in a similar field, adds significant credibility to everything else investors hear from you.
- A solid business plan. Investors will not only want to see ambitious yet realistic financial projections and targets, but also see that you really understand your market and customer, and can execute a go-to-market strategy to drive growth and hit your targets.
- An exit strategy. Investors will want to see how they can realise their investment gains with 5-10 years, and therefore what your strategy is for an exit, and within what timeframe, whether that be an IPO, sale or something else.
- A reason beyond the commercials. If all the above ticks the boxes, you still want to ensure that your pitch can get investors excited for reasons beyond pure financial gain. Whilst some investors will only be interested in the economics of the deal, others will want to see a way that they can help make a difference in the world with their investment.
- An opportunity to add value beyond capital. A lot of angel investors will want to have active involvement in the businesses they invest in, therefore it’s really important for them to see where they can add value beyond just their capital, whether that’s through mentoring, leadership or network.
How to Find Angel Investors?
Developing your investor network is a vital skill and the discussions with potential angels are an opportunity to not just secure investment, but also to get quality feedback and advice from people with good experience; even if they’re not willing to invest, most investors are willing to give feedback.
Fundraising can be a full-time job, and securing angel finance depends on high-quality research.
So where do you start?
First, write out the key business problems you need to solve and map the specific skills/experience that an angel could bring to your business to solve that problem for you.
Now you know what you’re looking for, you’re ready to start searching. There are a vast amount of places online that are worth exploring, but the best 3 places to start are:
It’s also important to get out and about and do some networking; local startup/entrepreneur community events, pitching events, and industry talks are a great place to do this.