How to Find and Get Angel Investors for Your Business
Without the help of angel investors, many start-ups wouldn’t have had so much success in the last decade. According to recent data, angels invest over $25 billion per year into 70,000 plus businesses in the United States alone. Each individual investment amounts to about $25,000. Of these investors, more than half of them invest in industries where they hold expertise. This means that growing companies not only benefit monetarily, but they also gain a skilled business partner.
If you’ve seen the hit TV show Shark Tank, you probably already know a little bit about how angel investing works. Not only that, but you’ve witnessed the creative (and sometimes ridiculous) ideas that the novice entrepreneurs pitch. While the sharks are considered angel investors, what you see on TV is far from reality. Finding a lender often takes weeks, if not months of hard work and determination. And, not to mention, you may need several angels before your start-up really takes off. Before even contacting angel investors, you need to put yourself in their shoes.
Understanding Who Angel Investors Are
By definition, angel investors are affluent and high net worth individuals that give start-ups capital in exchange for ownership equity in the business. Don’t confuse angel investors with venture capitalists. Angel investors don’t provide nearly the amount of capital that venture capitalists do, and they usually work independently instead of in firms.
Now, imagine you’re on a networking platform that has one goal: to connect start-ups with investors. The website gives you a brief overview of the individual, without revealing too much information. This is how the average investor would look:
- Age: between 40 and 60
- Income: $20,000 or more per year
- Net worth: at least $1 million
- Professional background: successful entrepreneur or business executive
- Industries: invests in industries that align with their professional experience
- Investment length: between four and six years
- Sourcing method: word of mouth, networking events, and referrals
Tips to Finding Your Perfect Angel
Finding the right angel investor is almost like finding your dream job. Before even meeting in-person, the angel is already judging your credibility, expertise, and professionalism. And just like finding that perfect job, finding an investor to come on board takes long hours of searching high and low. These are few crucial tips to finding an angel investor for your start-up:
Start With Those Around You
A large percentage of angels prefer to invest in businesses nearby because it’s easier to maintain relationships with the principals. For that reason, don’t look for investors on the other side of the country. If you’re in a mid-size city, you’re bound to find an affluent individual that might be willing to invest in your business. The Angel Capital Association is a great resource for finding local sources of funding.
In some cases, in-person impressions are much more powerful than cold calling or emailing. Visiting angel investing conference is the perfect way to build your network and find capital for your start-up. To get your feet wet, check out the Keiretsu Forum. On this website, you’ll find a calendar page all the meetups taking place throughout the year. If you want to present your idea to a panel of investors, you can do that with the help of Keiretsu.
Don’t Overlook The Internet
Nowadays, the internet is the number one source for finding angel investors. You can find funding on angel forums, directories, and websites that match investors to entrepreneurs. Some of the best sites to use are:
- BoogarLists| Angel Investors: This site boasts an expansive directory of angel investors across the country, categorized from A to Z. To top it off, there’s a brief description of each investor.
- Angel Investment Network: Designed with both investors and entrepreneurs in mind, the Angel Investment Network simplifies the process of securing funds. If you need capital, simply add a pitch and wait for investors to roll in.
- LinkedIn: This business networking website is a hotspot for both angels and start-ups. LinkedIn serves as a powerful tool to market your idea, contact angels directly, and learn about networking events.
- SeedInvest: The crowdfunding website SeedInvest has more than 255,000 investors using its website. With this platform, business owners can secure anywhere from $500,000 to $30 million.
Make Sure You’re Well-Prepared
Making a good first impression is key to finding an angel investor. Unless you’re skilled at making impromptu presentations, you’ll need to make sure you’re well-prepared. You can imagine how nerve-wracking it would be to fumble when you’re asked for important financial information. To nail your first meeting with an angel, make sure to check the below items off your list:
- Prepare a budget: A budget should include projected sales, net income, and expenses. This gives the investors an idea how quickly they can earn a return on investment and what the company’s financial standing looks like.
- Define your objectives: Why should an angel invest in your business? This is a chance to sell your business and define the long-term goals. Note what the funding will be used for and how you’ll expand your operations with the newly found capital.
- Understand your competition: Knowing who the key players are in your industry is sure to impress potential investors. With this information, try to quantify your market share. Unless you have a one-of-a-kind product, you’re bound to have competitors.
- Define your target market: Investors want to know who you are trying to sell your product to. Summarize the demographic and explain how you plan to reach this portion of the population. It’s also good to use statistics and know your demographic’s spending power.
- Be ready to negotiate: Whether you like it or not, investors are likely to negotiate the terms with you. They might want an increase share in your business, less involvement, and a flexible exit strategy. Both sides of the table can (and should) negotiate to better themselves in the deal. With that said, make sure to leave some room for negotiation with the first numbers you throw out.
Don’t let all the steps it takes to find an angel investor scare you away – just put yourself in their shoes, and before you know it, you’ll get the opportunity to pitch your great ideas. There are many advantages to choosing angels over traditional forms of debt. To learn more about angel investors and how to find one for your start-up, keep on reading.
While both very different types of businesses, Uber and Facebook have one thing in common: they were both founded with the help of angel investors. That’s right, even the most successful tech businesses needed capital from angels to launch their operations. With California start-up culture spreading like fire throughout North America, more and more entrepreneurs are turning to low-key, affluent angel investors to get their business off the ground. Although finding angel investors sounds daunting, it’s not quite as challenging as one would think. We came up with a comprehensive list of questions that cover everything you need to know about securing funding from an angel investor.
A Glance at Angel Investors
Each year, thousands of emerging start-ups get the necessary funds to operate their business with the help of angel investors. These affluent individuals are not only a source of funding, but they can also provide valuable knowledge to help you succeed in the market. Unlike venture capital, many angels invest on their own. The below questions provide an in-depth look at angel investors for those who are just getting started:
How many angel investors are there?
According to the Angel Capital Association, there are 300,000 angel investors in the USA alone, and much more in the world. In addition, there are about 4 million people that qualify as potential investors.
What is an angel investor network?
An angel investor network is a platform that connects small business and start-up owners with high net worth individuals looking to invest. It gives the investee the chance to pitch to potential investors.
What is a super angel investor?
Super angel investors are individuals in Silicon Valley who have made a number of seed investments in tech start-ups. They usually have a diverse portfolio and are well-known.
Why angel investors invest?
Angel investors invest because it’s a way for them to expand their portfolio and make long-term profits. Others invest because they feel passionate about the business and want to give a portion of their funds back to the community.
Do angel investors provide grants to nonprofits?
No, angel investors generally do not provide grants to nonprofits like the government does. However, some investors do provide funds to nonprofits with the expectation that they’ll be repaid; otherwise, they are just donors.
Do angel investors need to be accredited?
No, angel investors do not need to be accredited. They don’t fall under the same category as banks and credit unions. However, if they make more than $200,000, SEC considers them to be “accredited.”
What is an angel investor?
An angel investor is a private individual who provides funds for a company in exchange for ownership equity or convertible debt. Most angel investors have large reserves of cash.
What angel investors look for when investing in entrepreneurs?
Angel investors look for revolutionary ideas and businesses with high returns. They also want to know the number inside and out – from the gross sales down to the net income.
What does an angel investor do?
An angel investor provides capital for a business and sometimes acts as a mentor. In exchange, the business owner gives up either ownership equity or some sort of convertible debt.
Are angel investors a good idea?
Yes, angel investors are a good idea because they provide the capital needed to get a business off the ground. They are also a lot less risky than other types of financing.
What is angel investor funding?
Angel investor funding is when affluent individuals give money to business in their early stages for a piece of equity. When the business starts to make a profit, the investor will get a percentage.
How much do angel investors usually invest?
The average angel investor puts in anywhere from $150,000 to $2 million of their own funds. In the United Kingdom alone, start-ups acquire around $1 billion from angel investors annually.
How angel investors work?
Angel investors give capital to a start-up company and becomes a part owner in exchange. All investors hope that these up and coming business become the next Twitter or Instagram.
Where to Find Angel Investors
From online forums to conferences, there are tons of ways to find angel investors. However, finding investors in your industry can prove a little more complicated. It’s important to find an investor that not only fits your niche, but that also has the amount of capital you need. The below questions cover all you need to know about finding angel investors:
What to look for in an angel investor?
You shouldn’t just look for money, but rather an investor who can bring industry knowledge to the table. In addition, you should look for someone with a strong network and good relationships with suppliers and distributors.
Where to find angel investors for free?
You can find angel investors for free on many regional directories, including Angel Capital Network and Atlanta Capital Angels. These websites have tons of resources for start-ups that are seeking capital.
How to find an angel investor in a day?
You can find an angel investor in a day by joining Gust, a start-up platform with over 80,000 investors. Just tell them about your start-up and you’ll start getting funding recommendations right away.
How to find angel investors for small business?
If you have a small business and want investors, you can use online investment platforms such as AngelList or MicroVentures to connect with angel investors and pitch your ideas to them.
How to attract angel investors?
You can attract angel investors by making sure you’re not asking too much, by having strong team members with expertise in the industry, and by detailing an exit strategy in the initial pitch.
How to find angel investors?
An effective way to find angel investors is to use the Angel Capital Association’s member directory. After finding prospective investors, the next step is to visit their websites and submit a funding request.
How to get angel investors?
LinkedIn is becoming a popular way to find angel investors. You can connect with potential investors by joining groups, searching for specific keywords and reaching out to them directly, and by merely connecting with them.
How to find angel investors online?
You can find angel investors online by using the Angel Investment Network or Angel’s Den. Both of these websites give you the opportunity to connect with potential investors and pitch your ideas to them.
How to look for angel investors?
One of the best ways to look for angel investors is to visit a networking event, such as visiting a summit hosted by the Angel Capital Association. Every year there are hundreds of investors that attend this event.
Where to meet angel investors?
Many people find angel investors with the help of accountants. Most accounting firms have a plethora of affluent clients who are looking to diversify their portfolios and invest in start-ups.
How to get angel investors fast?
An effective way to get angel investors fast is to prepare a 90-second elevator speech. You can meet potential investors at networking events, conference, and meeting spaces that angel investors frequent.
How to connect with angel investors?
One way to connect with angel investors is to join or like a Facebook page geared towards angel investments. This opens the doors to tons of networking opportunities and professional relationships.
Approaching Angel Investors
Often times the most challenging part of securing funding is to approach angel investors. The first impression can either make or break your business. In as little as five minutes, the angel might already know if he or she wants to invest in your business. Whether it be in person or over email, your interaction with angel investors needs to be well-executed and carefully planned.
What every angel investor wants you to know?
Every angel investor wants to know how much a business is currently making, what their long-term plan is, the risks involved with the business, and what the valuation is.
How to ask angel investors for money?
Don’t be pushy and make sure the investor is aware of the start-up’s value. Every time you contact a potential business partner, create a personalized message, don’t just copy and paste.
What angel investors look for in a business plan?
When looking at a business plans, angel investors want to see detailed financial forecasts, a target demographic, and advertising ideas. They also want it to be reasonable and within reach.
How to work with angel investors?
Working relationships with angel investors require deadlines. This speeds up the funding process and gets the ball rolling quicker. However, investors might need some time to get the capital in the right place.
How to write a business plan for angel investors?
A business plan intended for angel investors should include in-depth information about the goals of a business and processes behind achieving them. If you have a team of individuals, the one with the best research skills should write the business plan.
What to bring to an angel investor meeting?
If you’re meeting with an angel investor for the first time, you should bring a PowerPoint presentation so they can visualize the business plan, the financials, and the start-up’s mission.
How to write an email to an angel investor?
When you write an email, it’s important to research each angel investor and then tweak your email accordingly. Before even focusing on the content inside the email, think of a way to get them to open the email in the first place.
How to approach angel investors?
When you approach angel investors, you need to be well prepared. Have a business plan in hand and think of potential questions the investor could ask (this saves you from being caught off guard).
How to pitch an angel investor?
Always give a brief introduction on yourself and explain your passion for the business and why you’re qualified to run it. Then, sell them the business opportunity and explain why there’s a market for it.
Paying Back an Angel Investor
Angel investors make their money by getting a share of equity in a business. Many investors have an exit strategy where they sell their ownership interest for a profit. When a start-up doesn’t work out as planned, paying back an angel investor becomes a bit more difficult. To learn more about paying back an angel investor, take a look at the below questions:
How do angel investors get paid?
Angel investors get paid in the form of ownership equity and by exit strategies. Once their stake in the company grows, the investor gets out of the deal through mergers or by selling their share in the business.
What percentage do angel investors want?
The typical angel investor expects between 20 to 25% equity in a business. Because they’re not venture capitalists and don’t invest as much capital, angel investors don’t typically ask for more than 50%.
How much ROI do angel investors expect?
Many angel investors expect an ROI between 30 to 40% on their investments. Most investors average around 27%, with some seeing way more or way less than that figure.
How do angel investors get paid back?
Angel investors get paid back in the form of ownership equity, a number that typically increases as a company’s net rises. This increase the investor’s net worth, and they can always sell their stake later on.
How much do angel investors take?
That depends on a company’s valuation and how much cash the angel investor is giving up. If a company is worth $1 million and the investor gives $500,000, they would likely ask for 50% ownership equity.
What do angel investors want in return?
Angel investors want to increase the value of their portfolio. It all boils down to more money. When it comes to angel investing, stakeholders increase their net worth through ownership equity in the start-up.
How do angel investors exit?
Angel investors can exit an investment by selling their equity in the business (including to the company’s principals). Another option is to negotiate an exit strategy among all those who have ownership interest.
The share an angel investor takes usually ranges from 20 to 25%. This number can fluctuate depending on the company’s valuation and the role the investor takes in the business.
What is the difference between angel investors and venture capitalists?
Venture capitalists typically invest more money into businesses than angel investors. In addition, venture capitalists often work as part of a firm, whereas angel investors work alone and usually only invest in start-ups.
How angel investors earn money?
Many angel investors earn money when a start-up is bought by a larger company. This is because the investor has a share in the company and therefore receives a portion of the sale price.
How to raise money from angel investors?
To raise money from angel investors, you need to determine your company’s value and then decide how much capital you need to expand the businesses’ operations. Then, consider if you want to give convertible debt or equity to the investor.
Negotiating and Sealing a Deal
Making a deal with an angel investor often times requires a lengthy negotiation process. With this comes attorneys, non-disclosure agreements, and legal fees. Remember, angels want the most amount of equity for the lowest cost. The below questions cover the ins and outs of negotiating and sealing a deal:
Do angel investors sign NDAS?
Yes, angel investors sometimes sign NDAS. This keeps both parties from sharing sensitive information. NDAS protect the business by putting in a safeguard that prevents investors from talking with competitors.
Do angel investors look at credit?
Yes and no. While not all angel investors run credit reports, a large handful of them do. Since they’re making a big investment, this is just one of the parts of fully vetting the start-up’s founder.
What do angel investors look for in a start-up?
Angel investors look for start-ups that can accurately value their business and understand the risks involved. They also want to see entrepreneurs that are 100% passionate about what they are doing.
When to get angel investors?
Before getting angel investors, your business needs to be scalable and have the potential to become profitable. You’ll also need a strong and diversified team that can bring different skills to the table.
How to negotiate with angel investors?
Consider seeking legal guidance from an attorney or mentor before signing the deal. Also, do your best to make a great impression and build credibility during the pitch, so you have grounds for negotiation.
Jason is a Senior Author for SBL. He has been working with small business owners like you for the past ten years. He graduated with an MBA and began a career as an independent financial consultant for small businesses in his state.