You’ve launched your startup and business is going well, but a lack of capital is preventing you from growing further. This is the point when you should consider searching for an angel investor.
Angel investors tend to be individuals looking for a chance to invest in a promising new business. They often choose opportunities where they stand to personally benefit from the type of product the business is offering. Alternatively, they may have a connection with the founder. Typical investments can be anywhere from $1,000 to $100,000, although sometimes they are even higher. In addition to funding, angel investors may have industry knowledge or connections that can help the business.
It used to be difficult to find angel investors unless you already had an extensive network. Now, just about anyone can meet angel investors and receive funding — as long as you know where to start.
Step 1: Create an Investor Profile
It may be tempting to pursue any opportunity that comes your way — but you also have a business to run and the last thing you want to do is waste time. Therefore, a better option is to create a profile of the kind of investor who would be suitable for your business. Then, you can assess the possibilities against these criteria.
The Typical Investor
A good place to start is to learn what typical investors look like. Usually, they are between 40 and 60 years old — this means they’ve had enough time to build experience in their industries, but they’re not yet on the verge of retirement. Most want to invest over a period of five to seven years, although some may want to exit sooner.
Angel investors typically have an income of at least $100,000 and a net worth of more than $1 million. Having plenty of cash means there is a possibility that the investor will be able to provide funding for future rounds and become a long-term support of your business.
It’s best to look for someone who has been an entrepreneur and has a desire to be active in your company by providing you with business advice. The investor should be familiar with your industry and know what challenges to expect. At the same time, though, you don’t want someone with a background very similar to your own, as you’re looking to gain skills and expertise that will complement your own.
In addition, it’s important that your personalities click and that you feel you will be able to work as equals. If your small business is still a startup, it’s likely that there’s no hierarchy of roles yet. The last thing you want is for an investor to take the role of leader, controlling the direction of your company and pushing you to take decisions that go against your own wishes.
An angel investor who is well connected and respected can provide you with much more than the capital and expertise of one person. Such investors can help you find clients, partners, and other investors. In fact, these angel investors often end up referring businesses to other investors if they decide not to invest in themselves. This is critical, since many angel investors will only consider a startup if they first receive a referral.
Expectations That Match Your Own
Angel investors expect to see a decent return on their investment, although they are aware that this could take a few years. Their expectations for business growth should be similar to your own.
Step 2: Use Online Directories
Once you know what kind of investor you’re looking for, it’s time to go out and search for opportunities. One type of resource to use is online directories of angel investors. There are a few to check out:
- Angel Capital Association — Find angel groups and accredited platforms.
- SeedInvest — You’ll need to pass the vetting process for your startup to be accepted.
- Gold Seeds LLC — The platform is specifically for women-led businesses.
- Angel Investment Network — Connect with more than 200,000 active investors across the globe.
- Life Science Angels — Seek funding for a healthcare business.
Step 3: Attend Angel Investor Events
Check out event platforms to learn about upcoming events where you’ll have the chance to meet angel investors. Startup Grind is a top choice and there’s always plenty happening on Eventbrite — plus, you can subscribe to receive notifications about the types of events you’re interested in. It’s also worthwhile joining relevant groups on Meetup.
Most angel investor events will be online for the time being, which means you’ll be able to meet people from all over the globe, no matter where you’re based. All the same, it’s worthwhile attending as many local events as possible, since it’s easier for investors to support your business with more than just funding if they’re able to physically visit your workplace. Plus, many angel investors find the chance to help businesses in their own community extra appealing.
Step 4: Network Constantly
Never stop networking. When there are no angel investor events to attend, work on increasing and improving your connections. This could mean attending other types of events where you’re likely to meet investors, but you should also consider events where you’ll meet business contacts who can make referrals for you. Speed networking is definitely one type of event to look out for.
Another thing to do is turn to LinkedIn. This is the place to make new business contacts. Join groups related to your industry as well as ones specifically for connecting with angel investors. Search for individual angel investors and other useful contacts.
You can also seek out individual users. In particular, look for users who are second-degree connections, as this means you both know someone in common. You can either use this as the starting point for your conversation or — even better — ask your contact for an introduction. When reaching out to third-degree connections, you’ll need to put in more effort crafting your message.
Finally, nurture current contacts to keep your business top of mind. Find out how they’re doing and see if there is any way you could help each other mutually.
Step 5: Make a Pitch
Once you believe you’ve found some angel investors who are the right match for your business, you need to do the best to encourage them to provide you with funds. This means creating a pitch that includes all of the following.
The most important factor to angel investors is that they’ll be able to see a good return — an amount significantly higher than a safer investment, such as in the stock market. An attractive return will be around 10 times the initial investment after five to 10 years.
Potential for Growth and Assets
You’ll need details that back up your claims. This means showing investors that you have a plan for growth that will enable you to reach your goals.
As part of your pitch, send investors your business plan. This should outline targets that are ambitious but feasible. Go into detail about what actions you’ll take and who you intend to target — to demonstrate you have a good understanding of both opportunities and potential customers. Make sure you include how you’ll scale your business to attract customers beyond your current target audience, how you’ll expand your offerings, or what new markets you want to enter.
In addition, talk about the assets your business possesses. Explain how you have all the skills you need to meet your objectives thanks to your partners, your employees, and the rest of your team.
Explain how investors are able to receive returns through an exit strategy. Consider both your investor’s preferences and your own predictions for growth when setting a timeline for when the investor will be able to cash out.
More Than Just Money
Give investors a reason to choose your business, other than the financial return. Use what you know about investors from their online profiles and through talking to them to figure out how you could sweeten the deal. Investors may want to become involved in mentoring, they may be excited about a product or service you offer now or intend to develop in the future, or they may be attracted to your business because of the impact it will have on society.
Bear in mind that angel investors are only one way to gain funding for your business. Make sure you consider other options as well, including venture capital.