Whether you’re looking to get a new business off the ground or expand into new markets, raising capital to fund your dreams can be daunting. Angel investors might be just the salvation you need to get your business idea up and running.
Unlike traditional funding sources such as banks and financial institutions, angel investors are more willing to take risks.
Not only can they provide you with the money you need to grow your business, they’ll be on hand to guide your growth, boosting your chances of success.
Sound impossible? Finding such a friend might not be as hard as you think once you know where to look. Here we’ll walk you through what an angel investor is, how to find them and tips for a successful pitch.
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What is an angel investor?
Often called ‘business angels,’ angel investors are wealthy individuals looking to invest their time and money in new and developing enterprises, usually in the early stages.
The name originally came from well-funded backers of Broadway musicals and plays known as ‘theatre angels,’ and has since evolved to define backers of a different kind.
But angel investing is about more than just funding.
Angel investors usually wield a lot of influence and have large networks they can introduce you to. Most have extensive experience, knowledge and skills they can share in the form of advice and support.
The level of involvement depends on the wishes of both the investor and you as the business owner. However, angel investors will be looking for a sizeable equity stake, or a part ownership of your business, in exchange.
Angel investors vs. venture capitalists
Angel investors are often confused with venture capitalists (VCs). While both serve a similar purpose in funding businesses, there are key differences.
Angel investors
Angel investors can work alone or in groups and usually invest their own personal finances. The amount an angel investor will commit tends to range anywhere from $50,000 to $500,000.
VC investors
Venture capitalists work as part of a company and manage a pool of other people’s money as a fund. A VC investment can run into the millions, with a starting point of $1million.
Both angel investors and venture capitalists will seek a part ownership of your business as equity. However where an angel investor will operate in more of an advisory capacity, a venture capitalist will usually take a seat on your board.
Related: Quick guide to R&D funding in Australia
Where to find angel investors?
So how do angel investors and businesses actually find each other? With the advent of online startup communities, it’s easier than ever to connect with angel investors and get your business funded.
One place to start is with the new Indigenous Angel Investor and Entrepreneur Masterclass.
Co-sponsored by the WA Government, Generation One and Perth Angels, this new pilot program means to boost investment in Indigenous entrepreneurs and start-ups. All classes will be run in Perth in November 2020. You can apply for these classes through COB (WST) 29 October 2020 here.
Networking
A good place to start is with your own professional network. To meet potential investors:
- Get active in your local business community
- Join industry associations
- Attend industry-focused events
Talk to people and let them know what you’re doing. There are also specific events hosted by angel investor groups.
Angel investor groups
Angel investors are increasingly getting together to form groups in order to find the best deals and to benefit from better networking. As a business seeking funding, you can register and submit your proposal for consideration by the group. A few examples:
Alternatively, over on Meetup, there are more than 25 different angel investor groups, with monthly pitching and networking events. This could provide a good opportunity to practice pitching, if nothing else.
Online networking
A number of online platforms now connect entrepreneurs and startups with a global network of angel investors. For example:
Acting like a matchmaking service, these sites offer a central database of global investors and invite startups to craft and publish their pitches for potential investors to evaluate.
What are angel investors looking for?
It’s smart to keep front of mind what angel investors are looking for in an investment so you can tick as many boxes as possible.
Angel investors genuinely want to invest, so they will be open and receptive to a good proposal.
As a general rule of thumb, angel investors are on the lookout for:
- The potential for a decent return on their investment
- A rock-solid business plan
- An experienced management team in charge of the business
- A business that is structured and ready for investment and growth
- A viable exit strategy in case it all goes pear-shaped. Your investor will want to know there is a clear and viable way to sell off their shares in the company.
It will take some time to consult with experts, assemble a team and gather all this information. But by doing the hard work now, you can improve your chances of getting funded.
5 tips on pitching your idea to an investor
Photo: Product School on Unsplash
So you’ve found and piqued the interest of an angel investor and they want to know more.
This is your time to shine and show you mean business, and that means being clear about the value you offer.
Whether you’re submitting a proposal online or delivering a pitch face-to-face, here are five tips to help make your presentation a successful one:
1. Be prepared
Pitching to an investor can be nerve-wracking and it all comes down to how well you know your stuff. Step one is to have a detailed business plan and financial projections (find a template here) ready to go. These documents should answers the following questions:
- What is the value of my business?
- How much money do I need?
- What will it be used for?
- What do I expect to achieve?
- What is my five-year vision for my business?
It’s up to you to sell your passion, plans and faith in your business idea. That starts with thorough preparation.
2. Know who you’re pitching to
Presenting to an investor isn’t about memorising and reciting a script. It’s important to do your homework and know who you’re pitching to so you can tailor your presentation accordingly.
- What is in it for them?
- Why should they consider your proposal?
- What kind of opportunity are they looking for?
- Are they a good fit for your business?
Learn as much as you can about the investor before you start the conversation.
3. Sell the benefits, not the features
While you might be proud of the fancy bells and whistles of your product or service, the real magic lies in how these impressive features will improve the lives of your customers.
What problem does your business solve?
What happens when people use your product? How do they feel? What essential pain points does your product address? If your business is still just an idea, you can gather this information by creating a minimum viable product — learn how here.
By focusing on the benefits of your product or service, you’re demonstrating why it is likely to succeed, rather than simply describing what it does.
4. Keep it short and sweet
In most cases, you may only have a minute or two to capture someone’s attention and get them interested. Craft a compelling elevator-style pitch that succinctly sums up:
- What you do
- What problem you solve
- Why you can do it better than anyone else
Once you’ve caught their interest, you can expand into more detail, but a short and punchy pitch will hook them in.
5. Practice makes perfect
Confidence in pitching comes from being assured of the value of your business and also being comfortable talking about it, something that requires practice.
Take the time to rehearse your pitch until it feels natural and flows well.
It’s a good idea to pitch to people who are experienced and can offer advice. This will help you identify any weak spots and make adjustments as needed.
Remember to keep it concise and stay on point. Try timing your pitch and recording yourself so you can see it from the investor’s perspective.
Calling all angels
These days, traditional financing options aren’t the only way to bankroll a business startup. Angel investors can help you launch your idea and gain traction, not only with capital but also through their business experience, knowledge and skills.
Prepare your pitch, start networking and check out the online platforms to find an ideal investor match. Then get ready to knock it out of the park!
This post should not be taken as legal or financial advice. Always consult legal, financial and other relevant professionals before signing a contract of any kind.
