Startups have limited options when it comes to securing an early round of funding. Though some choose bootstrapping, crowdfunding or receiving help from family members and friends, angel investors are constantly approached by promising startups.
Angels are businessmen and women with a significant amount of personal wealth, and frequently have their own entrepreneurial or business experience. They are individuals seeking opportunities to be active in young companies and devoted to discovering and becoming a primary backer of the next game-changing venture.
Each year, angels receive countless pitches that claim to be the next big social network, software solution or consumer product. In order to stand above the noise, startups must invest time in understanding what exactly angel investors are looking for. When pitching to an angel investor, startup founders must accomplish several things. You must concisely convey the merits of your idea, demonstrate a meaningful market need, and prove competitive differentiation, all while convincing potential investors that you and your team are trustworthy and capable of executing your vision. Here are five tips for convincing an angel that your venture’s promise will translate into financial return.
Dream Team Leadership
Investors want to believe that a startup’s leadership is capable of delivering on the company’s goals. Choose partners and other key team members with complimentary skill sets that fill every management need your startup requires. For example, a technology startup needs a keen, business-savvy leader as well as highly proficient technical founders. If necessary, seek to fill talent gaps with seasoned advisors. Angels are not simply investing in valuation models and products, they are investing in people. Moreover, many angels identify certain characteristics in startup co-founders that they find attractive or unappealing. Some angels hesitate from investing in companies with unproven management, while others focus their energy and dollars on organizations headed by charismatic and inspiring CEOs – regardless of past success.
Create a Strong, Profitable Business Plan
The most attractive startups speak directly to what angels want to hear: how will I make money off of my investment? Be transparent and upfront about the measured amount of risk and resist the urge to exaggerate the pitch. Angels want to see a solid business plan that includes monetization and scalability and a viable exit strategy. More often than not, angels would also prefer an investment structure that affords them a voice such as an advisory role or board seat. Angel investors are already aware of the possible consequences of funding a startup; do not risk your reputation and credibility simply to impress.
Do Your Research
This may seem overly simple, but entrepreneurs achieve the most success when seeking out a targeted list of ideal investors for their project. Many angels tend to favor a particular sector, and angel investing groups often revolve around a specific niche such as biotech, social/environmentally conscious companies, consumer products or even women-owned companies. A targeted, personal pitch is not only more effective in garnering qualified interest or “smart money”, but also prevents you from sabotaging any future projects through a mass pitching approach.
Vet Your Concept
Prior to pitching investors, startups need to properly vet their idea and business model. Traditional methods such as market research and surveys are appropriate, but newer forms such as crowdfunding are an excellent way to prove market validation, especially for consumer-focused companies. When the SEC finally releases rules for equity crowdfunding, wherein the prospective customer can become the investor, angels and venture capitalists will use this as an early stage filter to find the most promising startups.
Demonstrate Focus and Expertise
While entrepreneurs are understandably worried about keeping their lights on, do not let this detract from your delivery and execution. Angels seek out startups whose leadership operates with grit, determination and resilience. Solid startups understand the need for monetization but do not sacrifice the integrity of their vision, product, service or company. A startup that can get their product right, especially in a timely and efficient manner, will have an upper hand when it comes to securing capital. In order to capture an angel’s interest, set realistic goals, meet them and then exceed them.