One of the biggest concerns for startups is raising money. Unless you have friends or family to turn to or you've decided to go for crowdfunding you most likely need to find your first Angel investors.
Your first investors can determine the future of your business so it’s important you make a wise choice. One thing is for sure, you need to kiss a lot of frogs before finding the right one.
Find the right Angels
The key is to find angels who have already invested in companies in your industry and can be advisors as well as investors. At least the lead investor should understand your market and your sector. Talk to companies in your industry who have already raised money and see if they can make you introductions. Introductions are not easy to be made without network but if you are already in startup community and people like you don’t hesitate to ask for help. Warm introductions are always the best leads as it all comes down to credibility and investors would like to know you or someone trustworthy who could recommend you before you ask money.
If you have a very specific niche market and it feels like there is no investor who understands your product go a bit more broad and try to see who can be a good influence for your industry.
When meeting investors make sure to ask about their previous investments to understand the fit for your business. Some angel investors are full-time and the others part-time, so you cannot always judge the investor by the number of investments they’ve made in a year. It’s the quality, not quantity.
If you don’t have a network who could help you then syndicates, angel groups and directories like AngelList or Gust are a good starting point but make sure you have undertaken your due diligence.
There is plenty of angel money out there but it’s about making sure you’ve got the right money. Don’t just grab anybody’s money, go after the smart money.
Go out there, network and make connections
Nothing good comes out if you hide yourself in the garage building your product. You need to get out and talk to people. Go to networking and pitching events but make sure to choose the right events. Do your research before and ask who will be in the room for pitching events. Sometimes smaller events are better than bigger events with thousands of people. Don’t pay for pitch unless you geta really high value out of it. It’s very rare that someone asks you to pay for pitching.
So you how should you pitch on a networking event?
Before you start going to events you need to have your elevator pitch ready, either it’s a 30 second pitch, 3 minute pitch or 5 minute pitch. You need to be able to quickly summarize your business and not to mention the small details at this point. Make it clear and concise. Talk about the traction you’ve got so far and definitely mention what you are looking for.
Investors are looking for great entrepreneurs and the business comes after that. If you are able to prove that you are ambitious, bright, smart and experienced with good track record of achievements you’ll make a great first impression. It’s all about the first impression.
If you are a great entrepreneur but investor is not interested in your sector he might introduce you to his colleague or someone else who knows this sector better. Angels invest in people, more often than they invest in ideas.
Do your homework
Do your preparation before you do your first knocks on the door. Follow up after you’ve met your potential investor and add a pitch deck in the email. Are you familiar with a pitch structure that is universally accepted and readily understood by a very busy investor? Be sure the pitch deck is not more than 10-12 slides covering your team, achievements to date, product or service, your market size, competition, growth strategy, financial projections and the amount of money you are looking for.
Be quick and efficient and reply to your investor emails promptly as they most likely come back with questions if they are interested. Be well organized and have your documents ready to be shared if any additional information is requested. Don’t miss the train because you are disorganized and chaotic.
Angel investors are people too. They expect you to respect their time and understand their motivation. Forget pressured sales tactics, information overload and bribes.
As Guy Kawasaki says “ Investors have a triple bottom line. First, they’ve made it, so now they want to pay back society by helping the next generation of entrepreneurs. Second, they’d like to stay current with technology and tinker with interesting products and technologies. Finally, they want to make money. Thus, they are often willing to invest in less proven, more risky deals to provide entrepreneurs with the ability to get to the next stage.”
The biggest due diligence investors will do is on you. Make sure to keep your social media profiles in good shape (Facebook, Twitter and Linkedin). Have your references on hand cause you will need them. Investors go after you first as they invest in you to execute the business and look after their money.
Investors do not like the lack of transparency so if you have something in the closet when it comes to your financial situation then better bring it out sooner than later or your deal might be off. For everything you say you need evidence, either it’s your customers, followers on social media or current track record.
Know what you’re worth
There needs to be a balance between valuation and the amount of equity. Angels are not there to rip companies off and if you happened to find one who is then break up with them as soon as you see the first signs cause they are not the people you want to get involved with.
Finding the balance between valuation and amount of equity is the biggest area of tension between entrepreneur and investor. You might have a very high sense of valuation for your business compared to what investors would offer.
Be flexible around this for your first seed cause as soon as this money goes in, you already increase your value. What angels don’t want to do is overpay. Angels will look to negotiate with you to come up with a sensible valuation and if you absolutely stick to your guns the investor most likely will walk away cause you are inflexible and none of the parties would be happy about the end result.You should not be looking to give away more than 20-25% in your first round.
So how they decide how much your business is worth? If you are a startup with no revenue at all you might be valued not more than half a million.
What’s taken into consideration is your customers, traction, followers and product. So the first question you should ask yourself before asking for money– is your product fundable now or what do you need to do to reach that fundable stage.
A group of angels can see thousands of business plans in a year but only invest in 20 of them. So we talk about 2%. Make sure to get down to that group and you’ve ticked all the right boxes.
Source: Interview with Jenny Tooth OBE, CEO of UKBAA at StartupGrind