If you’re in your start-up phase, chances are you’ve heard a lot aboutangel investors. And if you’re serious about growing your business to its next growth phase, you’re probably going to be meeting several of them in the near future. Before you dive into the pool headfirst, it’s good to know what you’re getting yourself into.
Angel investors are people, just like you and me. The only difference is the numbers comprising their bank accounts. These individuals are notably wealthy and notably interested in an investment in a new, exciting company. Here’s the thing to remember when you make your pitch to an angel: he or she is looking for an emotional investment as much as a monetary one.
Most angels have been self-employed and found success with it. They usually have 30 or more years’ worth of experience in their field and are eager to share the lessons they’ve learned with other entrepreneurs. They tend to invest locally, then, because they like to have face-to-face interactions with the start-up’s founder. In addition to the money they invest (usually between $25,000 and $1.5 million), the emotional investment they make in your company can be invaluable; wouldn’t it be great if you could learn from a veteran’s past mistakes than have to absorb the costs from your own future ones?
That being said, however, angels are also looking for a high return on their monetary investments — usually between 20 and 30 percent during 5 years. To ensure that kind of success, many will expect a board position in return for the investment or sometimes a consulting role. Don’t be discouraged: because angel investments usually bridge a company from its start-up, self-funded phase to its break-even and positive-cash-flow phases, the added expertise will become a symbiotic relationship. Just make sure the terms and conditions of such roles are hammered out at the beginning of the relationship. Since most angels will expect a preplanned exit strategy regarding their monetary investment, it’s reasonable as a business founder to expect the same regarding ownership rights.
OK, now I know who they are… where can I find them?
While angels prefer anonymity in their investing roles, investors are increasingly joining angel networks. There are legions of Web sites dedicated to connecting entrepreneurs with angels. As the entrepreneur, look for angels with a background in your industry. Here are a few sites to get you started:
Pitching investors is like anything else — practice makes perfect. Remember, raising capital via angels is a far less formal process than raising capital with venture capitalists. You want to come off as completely polished yet semi-casual. Perfect your “elevator pitch,” and come up with an entertaining story regarding your company’s beginnings. Make eye contact. So many angels later say the reason they did not invest is because they didn’t feel any chemistry with the entrepreneur.
Another piece of advice for your actual pitch: save your financial data for the end. Most investors are going to assume your numbers are wrong anyway, but have a detailed logic that you can explain as to how you arrived at the numbers you did. And remember to tell your potential investor exactly how far his or her money is going to take you. If you have a slide presentation to go along with your pitch, your last few slides should be minimalistic in style. You want your investor to be focusing on you — not on a slide — by the end of your pitch.
In summary, angels are individuals, so each encounter is going to be different with different expectations. But most angels prefer a more informal tone to a meeting and are looking to “click” with an entrepreneur. In order to stand out, be creative.
Watching the movie Aspen Extreme is a rite of passage to living in Aspen. On a movie poster I once saw, an eye-catching description ran across the poster: “Top Gun on the ski slopes!” Immediately, without having seen the movie, I had a concrete image in my head that shaped my expectations. Try to create a similar descriptor for your company. If you only have two minutes to steal an investor’s attention, that’s a sure way to do it.
Looking forward to your success story,
Have an issue that you want addressed? Leave me a comment with your suggestion, and I’ll tackle it on my next blog entry!