How to work with angel investors
Learn more about the myths that surround angel investors.
Growing your business is exciting, and angel investment is one way to secure the funds to propel growth.
However, finding an angel investor is not only about securing money. Other important benefits to working with an angel investor include getting mentoring in starting and running your business. Angel investors, who have valuable industry connections, can also open doors that lead to potential business opportunities.
Making your business attractive to angel investors requires understanding of who the investors are, where to find them, and how to deliver your pitch.
What is angel investing?
Many myths surround angel investing. Knowing the difference between myth and reality will help you reach out to the right investors, and potentially secure their backing.
Myth: All angel investors are rich. It is true that angel investors have resources, but their resources are not unlimited. You may have to pursue more than one investor to secure the funding level you need.
Myth: Angels are just for startups. Many companies that receive angel funding are established companies and have positive cash flow. Having a business that's already proven itself — with a real product, customers, and revenue — makes your enterprise attractive.
Myth: You're giving up your stake when taking on an angel investor. Few entrepreneurs give up a controlling interest in their companies, even when there are multiple angel investors. Your goal should be to retain majority control of your business.
Myth: Angel investments are for the high-tech sector. "Main Street" companies, such as retail and service businesses, receive a lot of funding from angel investors. Angel investors may be found in your local community, and many prefer to invest locally.
Prepare your pitch for angel investors
Prepare a pitch to convince angels to invest. Naturally, they want to know if your business will be a good investment for them. They also want to know about you and how you handle yourself. During your pitch, dive into your business history and your future plans.
Potential investors will also want to know if you are a savvy owner who understands your production costs, revenue, and profit margins. You'll need a business plan that demonstrates a strong understanding of financial metrics, sales, and other indicators. Be prepared with answers to tough questions like:
What is your projected revenue for this year?
What is your exit strategy?
Have you considered licensing?
Practice your pitch until it sounds natural, and be confident in your knowledge of the numbers. Finally, know what you want from a potential investor, including how much money you'll need.
Find potential angel investors
Start your research by looking for industry-specific investors in your area. It will be easier to communicate with investors who understand your industry and business. Go online — the Angel Capital Association directory is a good resource — and search for angel investing networks near you.
Attend entrepreneur pitch events in your area. Also, investigate local business plan competitions. The judges may have contacts in the investment industry or can lead you to local angels.
Remember, all of your efforts accumulate. Everything you learn about how angel investors work and everything you do to prepare and perfect your pitch, will help you find potential investors that are right for you.