Top 7 Tips for Finding an Angel Investor
The startup community is booming, with angel investors and venture capitalists paying close attention to the next big idea. While raising funds can be a challenge, there are ways to improve your chances of finding an angel investor.
Keep reading to discover who angel investors are and what you can do to increase your odds of success.
What is an angel investor?
In the early years of a startup, the business may not have enough income to rely on debt financing to fund operations. But a founder may still want to raise external capital to help grow the business. One option is to seek money from angel investors.
Angel investors are high-net-worth individuals who invest in an early-stage company and often play an active role in helping the company grow. In return for their financial support, entrepreneurs give angel investors equity ownership in the company.
Angel investors are typically individuals that invest their own personal funds into startups they're passionate about. They may also partner with other angel investors to form a syndicate, creating a larger pool of funds to invest with.
Unlike venture capitalists or institutional investors in private equity, angels don't operate under strict regulations that require them to act solely in the best interest of their financial backers. Instead, angels tend to be more flexible and open-minded about deals that may otherwise be seen as risky.
Angel investors can provide more than just financial support. Many also bring valuable advice and guidance from previous entrepreneurial experiences.
But remember: Although angel investors aren't bound by fiduciary duty, they do expect an exchange for their investment in your startup, namely equity ownership.
If this is a trade your startup is willing to make, an angel investor may be right for your business. Here are seven tips to get you started on finding the perfect one.
1. Build a profile of the ideal investor
Angel investors are a diverse group. Some are individuals with a lot of money and some are part of bigger syndicates. Some invest in very specific areas and some have broad interests. Some invest only in certain geographic areas and some invest nationally or even internationally.
Your chances of successfully connecting with an angel investor will improve if you pre-emptively prepared a profile of the “ideal" angel investor your business needs before finding them.
Keep in mind these defining qualities of the 'best' angel investor when searching for yours:
An ideal angel investor has a deep interest in your business sector: Many investors are motivated by the business sector, not necessarily by the business plan. They might be attracted to your sector because they have worked there before and know it well, or perhaps because they just enjoy the sector's products and services (e.g., technology, SaaS, manufacturing, or even video gaming).
An ideal angel investor has a strong desire to help small businesses: Angels who want to help small businesses share their expertise and connections tend to make better investors than those who just want to make money on their investment.
An ideal angel investor wants an active advisory role: These angels can serve as mentors for your business growth. The ideal angel investor is not just looking at the profit potential of your company, but also at how they can play a key role in the development of its success.
2. Search close to home
Nothing is more important when looking for an angel investor to start your business than finding one close to you.
Many times people try to look for a great investor and they will travel across the country or even go out of their way to find someone that is very wealthy.
The problem with this is that it can be extremely costly. You will have to pay for transportation, food, and lodging when you are looking for an angel investor in a different location than your own. By looking for an angel investor close to your residence, you can save time and money on traveling.
If you cannot find an angel investor near your residence, try talking to people in your network. It's always best if you can find an angel investor from those you know well. Your professional network and business associates in the industry is a good place to start.
Furthermore, having an angel investor close to home can also pay off if your startup is rooted in a local community. The investor having knowledge of that same community can pay off strategically when taking marketing and customer know-how into consideration.
3. Network like a pro
If you’re not finding investors on the street, where do you find them? In most cases, you have to be referred. Angel investors are generally very busy people, and they don’t want to be bothered by pitches coming in from any member of the general public.
They want to invest in the best deals, and they want to invest in a way that limits their workload. So if you’re trying to reach an angel investor directly, chances are you’re going about it all wrong.
This is why it’s so important to network. You need to know someone who knows someone who has access to angel investors. If you know one of these people, your chances of meeting an angel investor increase dramatically.
It makes sense that you need a referral: angel investors are taking a big chance with your company, so they want some assurance of your ability and personal integrity. In other words, they want someone they trust to vouch for you.
When looking for potential investors, focus on networking with established business owners. They might become angel investors themselves or know an angel investor.
You can also:
Join business and trade organizations in your region and regularly attend the meetings. Consider joining civic and community organizations as well.
Attend local trade fairs and industry events. Get your face and your name out there so that when you do encounter an angel investor, they may have already heard of you through word-of-mouth.
Take advantage of the internet. Join forums, blogs, and websites where entrepreneurs discuss their businesses and seek investment.
4. Connect with them through the internet
Leading on from the previous point, you can also connect to angel investors online. This is also more relevant in the current pandemic environment.
You might be able to hook up with an angel investor through one of the websites that provide entrepreneur and angel investor matching. Keep in mind these sites do not guarantee funding for you.
What you do is get a foot through the door as you get a chance at making a connection with an angel investor who might genuinely be interested in your business proposal.
Here are two popular sites you can use today to get started:
Angel Capital Association (ACA)
The ACA has been helping to connect businesses seeking capital with angel investors since its founding in 2004. There are over 250 angel groups in the ACA, covering every area of the country and investing in almost every industry.
The website includes a directory of angel groups, a guide to raising capital, and resources for entrepreneurs. If you're looking for investors across the U.S., Canada, the Middle East, and South America, you can give the ACA a try.
Gust
Formerly known as Angelsoft, Gust is an online platform that allows entrepreneurs to instantly connect with over 85,00 professional investors around the world.
When you create your Gust profile, you instantly have access to a professional network of angels, venture capitalists, and consultants who can help your business grow. You just have to complete a single application to get started.
5. Prepare for collaborative interests
The angel investor world is a small community, so it's important that you treat each angel investor with respect even if they decide not to invest in your company. If one angel doesn't think it's a good fit, chances are he or she knows another individual who may be interested in investing in your company instead.
You should also be prepared to collaborate with more than just one angel investor. Some angel investors may be part of a network of investors that provides more resources, sharing the risk in the process while granting your startup access to more tools.
Be prepared for a proposal of this nature, even if you are just focusing your efforts on one angel investor.
6. Look up angel backers of similar businesses
Compile a list of successful businesses similar to yours and do your research on their seed-stage investors. Visit the websites of these companies and search for the details about their early-stage investors. If you are unable to find this information on the company website, check out their press releases or news items.
In most cases, these investors will capitalize on such an announcement. You can also try seeking help from your business associates who might have funded such a venture with an angel investor in the past.
After doing this, you can approach these investors with a better and more refined pitch. It gives you a good conversation starter of saying, "I know you invested in Company X and my business idea might appeal to you because it's from a similar industry/niche."
Convince them how well it can work and how profitable it would prove to be for all parties involved.
7. Prepare an amazing pitch
You have to be prepared. When you do make contact with an angel investor, don't expect them to read your mind—you must give them all the information they need, and answer any questions they might have.
So prepare a detailed business plan and be ready to tell them exactly how much money you want and how it's going to be spent. Also, make sure that you're clear on how much equity in your company you're willing to give up in exchange for their investment (don't go more than 20 percent).
Before you even approach an angel investor, make sure you have a fully fleshed-out business plan, insightful competitive analysis, and a compelling pitch deck.
Get started on your angel hunting!
So, you need an angel investor? We've been there as founders. Our portfolio companies have had many angels over the years, and we've learned a few things in the process. That's why we're here to help.
Garibay Ventures is a venture capital studio focused on helping early-stage companies find the ideal investments they need.
We understand the challenges that come with building a successful business and have built a world-class advisory to help our portfolio companies succeed.
Get started with us today!