An angel investor is an individual who invests his own finances, as well as time and experience, in startups and small businesses. Entrepreneurs are increasingly turning to angel investors for funding, which means angels are reading more and more business plans and proposals.
Sounds good to you, right?
Well, hold up.
I’ve seen way too many young entrepreneurs become obsessed with raising angel and venture capital (VC) without being careful. Raising money is not a sport. If you treat it like one, you’ll end up on the losing side.
Before I tell you how to get recognized by these angel investors, let me tell you who these guys are:
Angel Investor #1: “Money, money, I need more money.” These “professional angel investors” are the worst. This person wanted to be a VC, but couldn’t raise enough capital. The reason they are so dangerous is that they have too much vested in the small amount of money they give to your business, which then leads to over-involvement and pressure on you.
Angel Investor #2: “I have so much money, I don’t know what to do with it.” Every entrepreneur has met one of these investors: it’s the person who has already generated significant wealth and has no real need for more money, and can be a lot less selective in funding ventures. This type of investor is ok if you’re looking for just money and maybe some general advice about the start-up process, but don’t expect incredible moral support or stellar advice.
Angel Investor #3: “I’m super into a specific industry and have tons of connections in it.” This is the best angel investor, and a selective one, but the kind you should absolutely target. Why? Because this person already has money and isn’t looking to get involved in angel investing to generate more wealth as the ultimate goal. Instead, they’re hoping to serve as a true angel and really come through for your business by offering both funding and insight.
My simple advice is to look for angels that fall into either #2 or #3. Stay away from #1 no matter how desperate you get.
So, how do you stand out from the crowd and get recognized by Angel Investors #2 and #3? There are lots of ideas out there, but here are four strategies to make sure your small business gets noticed by angel investors in 2014.
Investors invest in people, so the first thing you need is a great team of people who work well together and are all passionate about the vision for your business. Make sure you assemble a group of people who compliment and balance each other in three ways:
A successful team will be left-brained and right-brained, competent in administration and marketing, and experienced in your industry beyond your niche.
If you need to pull in some other voices, but you’re not ready to hire anyone new, find some advisers who can make up for where you and/or your team is currently falling short.
Unfortunately, there is no magic formula to unlocking a big wallet. You need to know whom you are talking to.
The easiest way to know the investors you’re addressing, is to carefully choose which angels to approach in the first place (hint: go with angels #2 and #3!).
You might have a great team, a captivating brand narrative, and a solid company foundation, but certain angel investors still just won’t be interested.
Look for people who are:
Interested in your size – Some angel investors only want to invest in brand new start-ups, while others wait until a company has a little more experience. In your industry – These investors are taking a risk on you, so they generally want to know what they’re getting into. Most will only invest in industries they have worked or invested in before, and many angel investment groups focus on some kind of theme. Close to you – Many times, angel investors like to be involved in the organizations they support, or they at least like to see the results of their investments in real time.Once you’ve identified good potential angel investors, you can tailor your pitch and increase your chances of success.
In addition to your statements and values, take some time to craft a brief, compelling brand narrative. Let your passion shine through, and answer questions like:
Why did you start this business?How are you helping people?What need are you fulfilling that no one else is?Take your brand outside the box and infuse a little personality.
In addition to inspiring investors, you’ll probably find that you’re inspiring prospects and customers too. People love good stories, so developing your brand beyond the standard statements draws us in. As your audience grows, they will sell your business to investors. Here are a few ways to help them:
Get social – Establish yourself on social media, and get your audience engaged. An active Facebook Fan Page with a big following is a great demonstration of your influence. Testimonials – Ask your satisfied customers for quotes that you can use on your promotional material. Crowdsourcing – Ask your fans to invest, if you think they will. If you can point potential investors to a long list of people who believe in you enough to put their money where their mouths are, you’ll make a powerful statement.A strong brand is inspiring, and as long as you’re inspiring somebody, you’ll inspire investors too.
You don’t need to have a strong company before you talk to angel investors, but you should some basic foundations laid for one. Here are three keys you don’t want to overlook:
Project a strong return – The numbers vary, but most investors want to see between seven and ten times their investment in something like five to ten years. Don’t offer what you can’t attain, but spell out your plan clearly. Structure for investments – Incorporating allows you to easily carve out investor stakes. Have a formal shareholder’s agreement prepared. Establish an exit strategy – How will your investors get their money back? Are you going to buy them out? Are you going to sell the business? Are you going to go public?Angel investors want to be inspired, but they also need to know that you’ve looked ahead and made some serious decisions.
The success of your business will ultimately rest on your leadership. There is no shortage of books and blogs dedicated to helping you become a better leader in general, but there are three specific aspects of leadership to keep in mind as regards attracting angel investors:
You will probably never stop developing yourself as a leader, but start with these three things today so you are prepared to demonstrate that you’re the kind of leader on which an angel investor can rely.
As you network, plan and develop, don’t forget that this process takes time. Be persistent. Your dream is worth chasing, and your perfect set of angel investors is out there waiting to help you make it happen.
David Hauser is an angel investor and serial entrepreneur, founding Grasshopper and Chargify . More of his insights can be found in JUMP: The Ultimate Guide to Starting and Growing a Business.