Are you wondering how to land funding from angel investors? Of course, any real answer depends on where you are and the specifics of your business.
This article focuses on angel investors in the U.S., and the process of raising angel investment for high-tech or high-growth startups. It’s different in most other countries—and almost impossible for established businesses without high potential for growth.
We should also point out that angel investment is different from venture capital. People often use “venture capital” as a bucket term to include angel investment, but that’s unnecessarily confusing. Angel investment usually comes before venture capital, at earlier business stages. Venture capital usually comes after angel investment, for startups that continue to grow.
Angel investors are a wide range of different investors, not as formally established as venture capitalist firms, and not as homogenous a group, either. An angel investor might be a successful business person, a wealthy individual, a group of professionals such as doctors or dentists, or a local investment club, or somebody else completely different. Your angel might be a rich uncle, for example.
Venture capital, on the other hand, is investment from formal venture capital firms that are run by professionals who invest other people’s money.
Here are the basics of landing funding from angel investors:
1. Finish your business plan
If you haven’t already written a business plan, start now. Don’t write a 200-page document; keep it as brief and succinct as you can. We recommend using a Lean Planning approach.
You need a business plan for a few reasons:
- To help you estimate how much money you need
- To map the main priorities, milestones, financial prospects, strategy, and tactics
- To establish the numbers and key points you’ll want to highlight in summaries and pitches
- Eventually, to communicate with your investors—normally this happens during due diligence after your summaries and pitches have investors interested in learning more
2. Create your executive summary or one-page pitch
You need a compelling business plan executive summary to communicate with investors. Prepare a brief but exciting email, one page at most, outlining the growth prospects, type of business, and potential investor payoff. Prepare an investor summary memo or one-page business pitch.
LivePlan’s Pitch tool makes it easy to create a visually compelling, simple pitch for investors. Here’s a screenshot of a sample pitch from LivePlan:
3. Look for potential angels
Consider Harold Lacy’s “six degrees of separation” method. Your angel might be somebody you know, recommended by somebody you know, or a local investment club, business person, perhaps even a local development agency.
Search your contacts. Lacy recommends that you ask everybody you know, not whether they want to invest, but whether they know anybody who might. You should also post on AngelList and Gust.
Angel investors often focus on local markets, specific industries, and affinities such as college or university alumni. Your search should include looking for angel groups related to the college or university from which you graduated; your town, or state; and the industry you’re in.
Use web search. Search for “angel investors in [your area]” or “angel investors [your type of business]” or “angel investors [your college or university]alumni.”
4. Research your prospects thoroughly
This is no time for mail-merge or mass-emailing software. Angel investors are not a commodity and not generic. Never send untailored messages to angel investors you don’t know.
Instead, you need to approach them professionally, having done your homework on each group or individual. Serious angel investors almost always have serious web footprints. Search for them on the web and find out about their background, writing, speaking, and especially their industry experience and past successes.
As a potential investor emerges, find out whether he or she prefers a phone call first, a meeting, a complete business plan, a summary memo, email, or whatever. First, however, you need to establish some interest.
5. Make sure you have a good relationship with an experienced attorney
You need the right legal help to make a real deal.
Make sure your attorney has been through similar deals; if not, then they should recommend a specialist instead. Investment deals are serious business.
If you don’t find anything, what’s next?
Think it over. Maybe the investment filter process is a good thing. You might try other means instead of angel investors. Generally, investors are looking for companies to invest in that have massive growth potential, and that have an exit strategy. They make the majority of their money when you sell your business.
If you’d like to own your company for the foreseeable future, and/or you have a healthy, solid business with no real plans for large scale growth, you might be better seeking funding elsewhere.
But, if you have an exit plan, traction in the market, and plans to scale your business, expand your network. Look for industry or trade events where you can meet others who have successfully landed angel investment, and potentially chat informally with potential investors to get a better sense of what they’re looking for. It can be helpful just to understand more about why your business fits (or doesn’t fit) an investor’s model for a good bet.