Getting angels to invest in a project can be difficult. They’re risk adverse, conscious of market trends and often work in groups. Yet, these are some of the things that make angel investors so valuable. Typically an angel investment is $25,000 to $100,000 a company, though this can go higher.
First thing to remember: Angels Are Not Wells of Money
Big deals can be difficult to fund through angel investment, as often angels prefer mid-range numbers. That means that a company trying to get a $600,000 raise is probably not the best candidate for angel investing. This high number can indicate a couple things: that a company’s burn rate is high, that this is not early stage investing and that the company has given itself a too-large valuation.
Angels usually specialize in particular areas. Some angel groups event, only invest in startups that fit their interest. Regardless of sector though, angels generally need the same reassurances.
Second thing to remember: Angels Pay Attention
They are interested in the founders and team, in fact this is hugely important in determining a company’s valuation. The quality, commitment, integrity and history of team members reveals a lot to angels, especially if someone on the team has successfully worked with angels before.
Angles also like to understand the market opportunity that is being addressed, and see potential for a startup to grow. Because angels like to be early investors, it is best to have an accurate idea of what is needed and how your company will adapt to new developments.
An appropriate valuation is very important – this is one of the ways that angels are able to determine the quality of founders/team and the potential opportunity. It’s not all about the numbers with angels though. Everything should be laid out in a business plan that walks angels through the first stages of a startup, all the way through to acquisition or going public.
Because angels are paying so much attention, pitching is exceptionally important. This may be your only chance to present them with all this information, and while you don’t want to overload them, you do want to draw them in.
Third thing to remember: Your Pitch Does Matter
Every VC likes to see a particular type of pitch. It is a good idea to have a 2 minute, 5 minute, 10 minute and maybe even a 20 minute pitch prepared. This helps in prioritizing information, and also forces you to be extremely straightforward.
Now, just because your pitch may be as short as 2 minutes, does not mean that the funding process will be. As mentioned, angels care. “Caring” means they are going to make a gamble only on company’s they have thoroughly looked into and learned about.
Fourth thing to remember: Raising Angel Financing Takes Time
It is important to find the right investors – but this also means meetings, due diligence, negotiations and maybe even travel. Development may pause. It may not be possible to attend a pitch competition. And you may feel like you have lost all patience. Plus it is important to keep in mind any potential, future rounds. Yes, you may be doing all of this all over again.
Angel investing has its drawbacks. But looking at other investing processes, don’t they all have drawbacks too? Is there a risk free way to raise money?
Fifth thing to remember: Angels, Not Sharks
Angels are not here to take everything you work for; they are here to help and to be appropriately compensated for helping. The goal of an angel is not to own 70% of a company, because that is unfair to the entrepreneur. Angels are important members of their communities and they take what they do seriously, as should anyone who speaks with them about investing.