How to Get Angel Investors to Fund Your Small Business Startup

How to Get Angel Investors to Fund Your Small Business Startup

Part four of our "Guide to Financing Your Startup"

Angel investors are high net-worth individuals who provide cash to young companies, usually at an early stage, and take equity in return. When startups in search of funds have exhausted their family and friends financing options, they usually seek out angel investors when they are not ready to approach VCs for capital.

What An Angel Is Willing To Give:

Unlike venture capitalists who invest other people’s money, angels are investing their own money, so there will be less of it. They will carefully evaluate a startup’s risk factors to determine whether or not to invest their funds.

Angel investments typically range from $10,000 to $1 million per deal. In exchange for this financing, you may have to give up some control of your company; most angel investors will want to be involved in the company’s operation and control a substantial portion of the company to get a better return on their investment.

Angels may ask for a lot, but they also often have more to give than just funding. Angel investors can provide much-needed expertise to help a startup close business deals, fine-tune sales and marketing campaigns, and use their contacts and connections to secure additional funding.

What Angel Investors Are Looking For

Since angel investors are usually willing to take on more risk than commercial lending institutions or the SBA, they often look for companies that are small, have minimal market share, and have the potential to grow in a global market. Angels will want to see the potential for an average return on equity of 10 to 15 % before committing to any investment.

In order to help them determine the growth potential of a startup, angels need to see a well thought-out business plan with a proven product that has a recognizable and eager market. They also want to know that their investment is in the hands of a competent management and development team that is committed to the company’s success.

Here’s what an angel investor will be looking for:

  1. A business plan that’s both convincing and complete
  2. An experienced and knowledgeable management team
  3. Sufficient financial information about the business
  4. The amount of money invested by the owner
  5. If the business idea has merit
  6. Whether the angel’s investment can add value beyond the money
  7. The growth potential of the company
  8. Any significant barriers to entering the marketplace
  9. Timelines to commercialization and profitability
  10. A clear exit strategy

Angels like to invest in companies whose market verticals and business models they know something about. Identifying and pitching the right angels will increase your chances of success.

Finally, be prepared to work on building a professional relationship. While each angel brings a unique approach to their investments, consider the following general practices in order to establish a mutually profitable relationship:

  • Make your first impression a strong one.
  • Always be very responsive to requests and follow up completely.
  • Do what you promise to do.
  • Be honest.

Leave a Reply