Angel investors, high-net worth individuals making personal investments, will typically invest anywhere between £5,000 and £500,000 in a start-up or early stage venture and often play an important role in supporting businesses in their first rounds of fundraising.
These investments are made directly from an angel’s own personal wealth (which is usually earned rather than inherited). Therefore, they tend to be a more hands-on investor and they usually like to work alongside other angel investors, so prefer to bring together a syndicate of similarly experienced and supportive backers. So how do businesses go about raising angel investment?
The importance of commitment and a network
It’s important to consider how much you have personally invested in your business before asking others to do so. Whether that be in terms of personal investment, personal loans, a friends and family round, or just spending every hour available to build your businesses – your commitment will be questioned when asking for other’s cash. At this point it is also worth covering off that angel investment is growth capital. Growth capital is not for every business and the cheapest source of capital is always the customer – so if you can keep things lean and expect early sales then bootstrapping could the best alternative dependent upon your business model.
Active investors are consistently inundated with business propositions, the majority of which come in cold, most likely as an email with no prior connection. Needless to say the odds of success are therefore pretty slim. The best way to engage investors is to ‘show up’ and get on the radar. Awards, events, conferences, meet-ups – all places that investors, especially those who are more active in the space, are likely to be found. Getting out to these events is a good way to introduce yourself to the angel investment scene – and even if you don’t meet your target investor, there will always be the possibility of introductions. Getting out and building a strong network is paramount to finding investment – a warm referral to an investor has a much higher chance of getting you through the door.
Prep to pitch
The best pitches are direct and handled with confidence. Overuse of language and jargon is all too often the disguise of a weak proposition or a founder that has yet to clearly define what their business or product is. After all – if you can’t sell your product concisely to an investor, then how will you sell it to the market? A strong pitch also needs to have a strong pitch deck at its core. All the obvious cornerstones of the pitch deck need to be the foundations of a pitch; concept/brand; product; potential market; revenues; revenue projections; capitalisation tables and exit strategies – all crucial.
However, be prepared to talk about yourself as well. Investors will want to know why you? Why are you the right person to succeed in building this business, what is your background, what are your motivations? Why are you the best person to sell the concept to others to attract both customers and world-class talent to work with you in your mission. Why are you the person the investor wants to be financially wed to for the next five to six years?
Practicing your pitch is part of the key to success. Practice in front of anyone who will listen. Colleagues, peers, friendly investors in your network, friends, family, and even the taxi driver – all will have very different perspectives, any one of which could force you to answer a pertinent question you’d never even thought of and help you develop a thorough Q&A cheatsheet.
Finally – honesty. Not only will it endear you to your audience but will also prevent an investor from signing on the dotted line for the wrong reasons – a situation that can become counter-productive and fatal to your business in the extreme.
Reading the room
When pitching investors one thing is certain – they will ask questions, and if they are interested – a lot of questions. As part of the Dragon’s Den generation we all know that never has a pitch been given to a room of investors with the only retort being, ‘sounds amazing, where do I sign?’. Investors ask questions for a number of different reasons. They may want to further probe your financials, question the business model or they may not fully understand the concept, but they may also want to test you to see how you handle pressure. Building a business is challenging and angel investors know this better than most as, generally, their wealth will be the product of a successful venture.
Reading investors is a skill hard earned and never perfect as different investors will have varying motives and styles. However there are patterns to be observed that can serve as omens to the leaning of their favour. For example, very few questions and a swift exit is rarely a good sign. Questions around the metrics and revenue projections show interest but are often par for the course. But once an investor starts asking the why you questions it’s fair to assume that their interest has been piqued. The term ‘teams not themes’ is almost a motto for some investors and relates to the fact that even the best technology or business model can fail under the wrong management. Questions about you and your team are often a sign that the investor buys into the concept and is curious to know if they can work with you.
See also: How to find and pitch your business to an angel investor – Jenny Tooth, CEO of the UK Business Angels Association, explains what angel investors look for if they are thinking of investing in your growth business
Beyond the pitch
Once investment is secured it is imperative to get the most mileage out of your investor as possible. Smart investors tend to attract a following, as their interest provides a validation or you and your business. Use this by encouraging them to add to the syndicate and engage others to back the business, either financially or as an advocate. The old adage, ‘strength in numbers’, is one that definitely applies to businesses in the early stages and an investors expertise and connections and the implicit endorsement of their reputation can end up being far more valuable than their capital.
Tim Mills is an investment director at the Angel CoFund.
Advice on preparing for a pitch
Here’s a checklist to make sure you have everything in place before you pitch your business.
Start by asking yourself the following four questions:
- What is the purpose of the pitch?
- Who are you pitching to?
- What are you likely to be asked?
- What could go wrong?
What is the purpose of a pitch?
You need to clearly define what you hope to achieve from the meeting or pitch and what the ideal outcome would be. This will ensure you have a clear approach and are consistent across your presentation. It is important to clarify the objectives: are you looking for investment or a partner? Are you trying to sell yourself, your product, or your company?
Who are you pitching to?
Research is the foundation of any successful pitch, and is not just limited to the market you’re operating in. You need to ensure you have a thorough understanding of the company you are going to be talking to and the sector it operates in. In addition, you should also find out exactly who you are going to meet and get some background information about them.
What are you likely to be asked?
When you see senior executives of the world’s biggest companies, they often seem to know the answer to everything they are asked, from the financial position of their business to the number of people in the company . It’s impressive to watch, but do they really know the answer to every question about their business? The answer in most cases is ‘no’ – they have just done their research and prepared thoroughly based on their audience and subject – you should do the same.
Think about the types of questions that you may be asked, particularly those that may be difficult to answer. Questions vary depending on the type of audience, but here are a few examples:
* What does your company do exactly – the overarching pitch?
* What is the value of the market for your product?
* Is your intellectual property protected in any way?
* How much money do you need? How far will that go?
* What is your marketing strategy?
* Who is on your management team and what is their experience?
What could go wrong?
You have to think about everything that could go wrong and have contingencies in place. This can include basics like:
- Having business cards
- Ensuring you have all the leads for your computer
- Having a backup copy of your presentation (on a memory stick or DVD)
- Printing off and binding colour copies of your slide deck Having the exact location of the pitch and the contact details of the people you are meeting
Your ability to present in a clear, concise and convincing manner is vital in any pitch situation. Remember that everything you do sends out a message – people focus consciously on what you are saying but unconsciously on how you are saying it.
The more you rehearse your pitch the more natural it will become and the more confident you will be in delivering the content. Confidence is critical for any pitch, as it puts everyone involved at ease – including the presenter, who will give a more convincing performance as a result.
Think about the pitch as going on stage, rather than just a way of imparting information.
Ten questions to ask yourself before a pitch
- Do you know what you want to achieve from the pitch?
- Have you rehearsed the pitch?
- Are you passionate about what you are presenting?
- Are you comfortable with the content, especially any figures?
- Do you know who you are pitching to?
- Are you prepared for any difficult questions that may be asked?
- Has someone else looked over the presentation?
- Have you checked all of the facts?
- Are you going to excite your audience?
- Are you going to enjoy the pitch?
See also: How to get an angel investor onboard – In this guide, we look at how scale-ups can maximise their chances of getting angel investment.