Most entrepreneurs are aware that angel investors can be a valuable source of capital for startups. But how do companies meet them? What’s the best way to meet and pitch them? Here’s a basic overview with tips on how to find and pitch to angel investors.
What is an angel investor?
Within the startup ecosystem there are two important potential investors: venture capitalists (VCs) and angel investors. VCs are employees of venture capital firms that invest other people's money, usually held in a fund, into startups. Many venture capital funds prefer to invest in established businesses generating $100K+/mo in revenue. They can invest millions into growing companies but expect an incredibly high rate of return.
Angel investors, on the other hand, are typically wealthy individuals who invest their own capital into companies. They differ from VCs in that they have a higher portfolio diversity, often support businesses from the ground up and are willing to take bigger risks than a VC. They understand that growing a startup into a profitable enterprise takes some time, and are extremely important for startups looking for funding in the early growth period. Many angel investors are experienced business people with years of knowledge behind them, making them not only an important asset financially, but a mentor as well. Most importantly though, anyone can be an angel investor; you can find an angel investor on the other side of the world, or right down the street.
Where to find angel investors?
There are many ways to meet angel investors. Online platforms, events, meetups and cold calling are just some of the ways startups have pitched to investors.
1. Online platforms
For many businesses, online platforms like Republic remain the most reliable way to directly connect with angel investors across the globe. Many of these platforms feature directory-style websites. AngelList, Gust, OnStartups, Golden Seeds, Angel Investment Network USA, and US Angel Investors are just a few examples of the many platforms that exist to establish first meetings between investors and companies.
Pro tip: Follow angel investor blogs to stay up to date on the biggest names in your chosen industry, new developments and investor profiles.
2. Industry events
Unlike VC events, which are usually held in major cities, startup events can happen anywhere and often draw hundreds of interested investors. Look within your own communities to gain competitive advantages over those coming in from out of state. Many angel investors are interested in investing not only for potential capital, but also for the development of their own homes and cities. Tighten your business plan to reflect how your company addresses the needs of the environment around you.
Pro tip: Some groups will charge you to access their events, but many will be free. Find the right event for you!
3. Angel investment networks and cold calling
While not as effective as the first two, cold calling an angel investor is one way to get your foot in the door. The problem is that angel investors usually screen management groups and business ideas before agreeing to a first meeting. Unless you have a contact willing to put you in touch with someone specific, odds are high that your email or call will get lost in the shuffle.
Pro tip: One of the most effective ways to successfully pitch an idea is to establish a vocal champion. Before cold calling, try to recruit someone inside of the angel investors group or close to an individual. This person will help draw in members of the network and establish your credibility.
How to pitch successfully
Once you’ve connected with an angel investor, it’s time to think about how to pitch strategically and successfully. Oftentimes, the first meeting with a potential investor involves a presentation. Companies should take advantage of this time to showcase not only the successes of their idea, but the negatives as well. Angel investors are savvy businesspeople; they will identify any gaps and holes in your plan. Present the numbers, vision and plans for growth.
Research and understanding the industry you’re entering into is just half the battle. The other half is understanding your angel investor. Research the process of the individual or the group – each angel investor follows a different and unique process when choosing a startup. Follow their investment style closely and use key information to drive your pitch at critical moments in the process.
Effective connection is a huge part of the pitch process. Open communication channels cultivate open relationships between the investor and a company, which can be a deal breaker in the funding stage. Establish relationships with your angel investors. Understand what they are interested in and how they want to influence companies and communities. Building trust and being transparent will go a long way towards establishing successful relationships with angel investors. After all, not only are they investing capital in you, but they may be willing to introduce you to other investors in their field.
Pro tip: Don’t say things like, “I need an answer in 48 hours.” This almost never works and most angel investors will be turned off by ultimatums, especially since you need them more than they need you. However, do make it clear that you need to get the funding round done, so you can get back to business.
Connecting with and pitching to angel investors can be a difficult and lengthy process. Remember that asking for feedback, especially from those also involved in the startup industry, can be a helpful way to establish how your pitch ‘reads’ to an audience. Nurture relationships with founders and investors in your industry – they can be a foundation for successful and engaging pitching. Finally though, remember that if you have a clear business idea, a strong grasp of your industry, and a growth plan, you’re starting in a good place. Angel investors want to invest in new ventures after all – it’s just up to you to prove why they should.
Spend time on your pitch deck, and get feedback from investors and other entrepreneurs. Be upfront about your traction so far, and explain how you plan to grow into a large successful business.