Angel investors represent a segment of the available capital that can fund your
business who aren’t hounded by deals on a regular basis. So your company
will be considered individually, not stacked up against 40 others as it
would be in an angel group.
So, how do you get their attention—and their money?
1. Write a great business plan, but know that few will read it.
Business plans are an extremely valuable exercise and should always
be presented to show the entrepreneur is serious and has done his
homework. However, no one will read past the first page unless they’ve
already made somewhat of a gut decision to read further.
So, always include a compelling summary page with visual elements that “advertise” your company.
BPlans is a great tool for this. Add video if delivering electronically (try
Animoto) and keep it under one minute. People have short attention spans!
2. Don’t use acronyms (unless you define them).
People outside your industry will be reading your materials and it is
intimidating to read something laden with acronyms. It distances
potential investors and they will not have that “gut” feeling they need
to get excited. Instead, they will say, “I don’t know enough about this
industry to invest in it.”
Additionally, the same acronym will translate differently across
industries. B.A. could be a Business Analyst, a Bachelor of Arts, or a
Bad Ass. Similarly, dumb down your business plan to an elementary
reading level. Your dentist may want to invest in your new software, but
she doesn’t know what SaaS is, and Software as a Service doesn’t help
her, either.
So, if you reference Software as a Service, you might want to add, “A
piece of software you access through the internet and is paid for on a
subscription basis, like Salesforce.com.” Oh yeah, now it makes sense.
3. ABP: Always be pitching.
How does one do this without being obnoxious? By putting himself in
as many opportunities as possible for people to ask what he does.
The best way to do this is by asking others what they do first and
being genuinely curious about the answer. Naturally, they will follow up
by asking what you do. Then know your one sentence answer and follow up
with “and we’re raising funds from private investors to get us
started.” They will typically ask a question about your business and the
conversation begins!
You can do this anywhere. It doesn’t have to be at a formal
networking event. The purpose is not to ask the person for money; the
purpose is to let everyone know what you do and that you are looking for
capital so they can either invest in you or make introductions to
people who will.
4. Have a pitch party!
Most angels or potential angels aren’t part of a group, but there is
value in the group dynamic. Potential investors (and people who know
them) get to see that others are excited about the product too, and it
reinforces their own positive feelings. Few people want to be “the
first” or “the only” investor in your product. Use the power of social
proof in your favor.
How? First, get a venue and a time. You shouldn’t have to pay for
these. Perhaps the library or a local tech company can host. Look for
community supporters and ask around about space. Make the event a
weeknight around 7pm, a reasonable time for professionals to get there
after work. Offer snacks and drinks and have copies of your business
plan ready to go. Allow time for people to network (half an hour usually
works) and then welcome everyone and do your pitch. Make your
invitations open so people who are not angels can still refer and bring
friends. Get them excited about the prospect of a new company opening in
their own backyard!
Bonus points: Ask a local expert to give a talk on your industry
(make sure it supports your business idea). This gives the attendees
another reason to come, allows him to advertise his business, and sets
the stage for your pitch.
5. Go for the gut.
You’ll often hear investors say, “I look at all the details, do all
the due diligence, but ultimately, I make a decision with my gut.” What
does that mean? And how are you supposed to know how their gut feels
that day? It’s because pitching is making a sale and all sales are made
emotionally and followed up with logic.
Wait, you didn’t want to be a sales person? Well, welcome to the dark
side. Everyone is selling something, whether they have the title or
not. A professional knows how to navigate through—but not
manipulate—people’s emotions. Mostly what they will be buying into is
their feeling about the entrepreneur and her passion for the product.
After all, the entrepreneur is the one who will be waking up at five
every morning to build the company, and she’ll never be more excited
about the business than she is today.
Whether you’re speaking one-on-one or pitching to a group, know that
90% of your job is to get people excited about your company. Statistics,
facts and figures, profit and loss, projections—all those comprise the
other 10%, which is logic. It takes 100% to move forward with the
decision to invest, but don’t undervalue the emotional aspect. That’s
why the most entertaining pitches get a second look, and ones that are
more viable may get ignored.
Substance will come later. The shorter the pitch, the more it should
appeal to emotion. Only then will you be given the opportunity to
support their excitement with logic.
6. Be transparent.
Though the amount of detailed due diligence done by an angel or angel
group can seem intrusive, you’re getting into a long term relationship
and full disclosure is required. If there are any holes in your
proverbial bucket, now is the time to leak them.
What you may think is a deal breaker may be perceived as a
surmountable challenge by an experienced investor. Those pesky requests
from angel investors delving into all the private parts of your business
will not be as much of hassle if they are anticipated and prepared.
Everything does not need to be disclosed right away, but as a serious
business owner, you should have the following ready to go:
- Business Plan (should define market, problem, growth potential,
sales channels, competition, patent info, exit strategy, profit margins,
scalability, milestone markers)
- Financial Model and Balance Sheet (even if there are zeros across the board)
- Management Resumes and Organizational Chart
- Customer References
- Personal References
- Social Security Numbers (for background checks)
- Capitalization Table and Shareholder Roster
- Stock Option
- Grants
- Contact Information (for managers, directors, shareholders, developers if outsourced, attorneys, accountants, consultants)