For the Entrepreneur: Finding and Approaching Angels
At Startup Angels, while most of our focus is directed towards angels and startup investors themselves, we often are contacted by entrepreneurs asking us for advice on how to find and approach angel investors. We wanted to pool some of our thoughts on best practices and share them with you. We hope these will help both the entrepreneurs better work with angels, and the angels have stronger experiences with entrepreneurs.
Start looking early (start looking now). It’s best to build a ‘network of angels’ that know you and respect your work, so when it comes time to fundraise you can do so more quickly.
Ask other startup founders for suggestions. Preferably founders that are at least 6 months further along than you (or founders who are a full funding stage ahead of you). They may know an investor that focuses on your space, or at least be able to connect you to a couple angels who can offer advice.
Attend events. This is always a tradeoff — as an entrepreneur you should be most focused on your company and your customers. But being a part of your community is key in order to build relationships with people who can introduce you to local investors. Events can be good ways to find some investors (at least, investors that partake in the tech and startup community. They can be good gateways to investors that are more private).
Look at angel groups or angel networks, if you have one near you. Group quality varies widely…some are active, others are not. Some are great to work with, others not so much. Some will list their members; while it may not always make sense to ‘pitch the entire group’, you should at least try to connect with a few individual members of a group and get to know them.
Ask your current investors for introductions. Once you’ve found someone who will invest in you, ask them for introductions to other angels they know. Hopefully, their word and ‘endorsement’ of your startup will carry weight with their friends.
Look for investors in untapped places. At the earliest stages, a lot of your backers are probably people closest to you — friends and family (F&F). The reality is that a lot of people who raise large rounds this way come from wealthy backgrounds. But remember, anyone can have people in the community that believe in them and give them small investments.
Regardless, make sure you take amounts that you AND the investor are comfortable with. One of the biggest mistakes entrepreneurs make when taking F&F money is they take too much money. This can put a tremendous amount of pressure on your relationship with this person, and ultimately cause a LOT of drama if things don’t go as planned. So, if you take money from friends or family, take less than you need.
Don’t get discouraged. Many angel investors prefer to remain private. This allows them to live their life without being actively approached by entrepreneurs and means they’re difficult to find. But — with enough tenacity, networking, and traction — you can find a way to meet even the most private of angels.
Warm introductions are key. Most angels prefer deal flow to come via those they trust. Often, this is past entrepreneurs they’ve funded or worked closely with. But this can also be lawyers, startup community leaders, other investors, or really anyone that knows the angel well. Warm introductions act as a filter — if an entrepreneur can’t get someone to vouch for them, then that’s a concern.
Do your homework before you approach. If you’ve found an investor you’d like to meet with, learn about their background before you approach them. It’s important to understand what their expertise is, what types of companies they’ve funded in the past, etc. If an angel’s history seems irrelevant to your business, then they may be irrelevant to you.
Be concise and professional in your emails. Do not write long treatises or convoluted explanations about your business when you email an investor. Nobody has time to read that, yet for some reason a lot of entrepreneurs send out verbose emails and/or correspondence with typos. Both of these mistakes can be a kiss of death with that investor. At most, 3 to 5 tight sentences with a compelling hook on what makes your startup unique, and why you think this investor would be able to help.
Be honest. Investor relationships should be built on trust. You should feel comfortable talking to your investors about both the ups AND downs at your company. Startups are difficult, and good angels know this. If you establish honesty early, once you have investors in your company they may be able to help you out of a tough predicament down the road, before it’s too late.
Ask for advice (but be direct). The catchphrase “Ask for money and you’ll get advice; ask for advice and you might get money” is often true. For many angels, startup investing is an emotional process. They want to feel attached to you, your team, your company. They want to be a part of the fight to build something big. Immediately asking for money can be a turnoff. But by asking for advice, you’re inviting an angel to engage with you and get to know you better. Over time, they just might come to love you. That being said, if you have legitimate plans to start fundraising soon, its best to be clear with an investor and your plans to do so.
Many angels ‘invest in lines, not dots.’ This means they want to see a track record from you. If you meet with them and the same day you ask them for money, they’ll most likely say no (or not yet). So start early — let them get to know you and show them that you can execute. Start by engaging an angel for advice on your product, market, or other challenge you face. Then make progress and keep them informed of your wins (and your losses). If you’ve already impressed a potential investor with your ability to make progress and execute, they’ll be more excited to back you when you are ready to raise.
Get feedback on your pitch deck. If you’re preparing a pitch deck, one tactic is to approach an investor asking for ‘feedback on your deck’. This will allow you to get their feedback (which is useful) and gauge their excitement. If, after seeing your deck, they seem highly interested in your company, then you might ask them if they want to be a part of your round.
Don’t waste their time. Most angels invest as a hobby, meaning that unless they’re retired they probably have their own company or career that takes up most of their time. Please be mindful of this. If you’ve done your homework and you don’t think an investor is a good fit for you, leave them be. Another entrepreneur may be perfect for them.
Don’t waste your time. As an entrepreneur, fundraising takes A LOT of time but your business and your customers should always be your number one priority. Be careful that you don’t get sucked into endless meetings with a potential investor that is going nowhere. If you’re not gaining some kind of value from a meeting (i.e., advice), it’s probably not worth your time.
How you approach can change, depending on how much of your round is committed. If you’ve found investors who are covering 50% or more of your raise, then you may want to be even more direct with how you approach a potential investor. Afterall, if you’re at this stage, you’re round is ‘about to close’ and scarcity becomes a concern.
The best time to approach an investor is when you don’t need them. If your startup is growing quickly, investors will be most interested in giving you money. It will be up to you whether you take it.
Of course, it’s important to keep all these points in mind as ‘best practices.’ They’re are many ways to approach fundraising, and things work differently in different parts of the world.