How to Make Your Startup Attractive to Angel Investors

Angel investment is one of the most common capital sources for both startups and relatively new companies looking to expand. But drawing high-net worth individuals toward an early-stage enterprise or business proposal requires well placed effort. First of all, angel investors can’t fund something unless they know it exists, which means you’ll need to focus on getting the word out in the right circles. Second, they’re unlikely to bet on a venture unless it offers a substantial return. So a sound business plan and credible growth and revenue strategies are key.

However, according to research by Shai Bernstein (Stanford Graduate School of Business), Arthur Korteweg (University of Southern California Marshall School of Business), and Kevin Laws (Chief Operating Officer of AngelList), arguably the most important factor is the quality of the personnel that the candidate organization has assembled.

Exceptional founders, and a reputable team.

Bernstein, Korteweg, and Laws’s analysis indicates that the presence of visionary founders and reputable staff on a startup’s team is a big draw for angel investors. The data further suggest that experienced angels are likelier than inexperienced ones to emphasize the importance of the people factor. Angels with a lot of investing background are also likelier to take a chance on a promising startup or fledgling enterprise than are newcomers to the profession, who may prefer to “play it safe” by betting on companies that already have some traction.

Seek out promising angels, and do research on them.

Many angels specialize in a particular industry or niche, and it’s a good idea to seek out individuals whose areas of interest or specialization accord with your own, particularly if your proposal is esoteric or technical. Find out what sort of endeavours those investors have funded in the past. You can even attempt to contact previous beneficiaries of the angels you’ve identified as prospective funders of your project, to ascertain what worked in the past and what those angels tend to look for.

A strong pitch.

If you’ve ever watched a full episode of the American network television program Shark Tank—or its Canadian counterpart, Dragons’ Den—you may already have a good idea of how to distinguish a high-quality funding pitch from a lousy one. If angel investors invite you to pitch to them, you need to be ready.

Aim for a duration of around ten minutes—enough time to cover all the essential information without rambling or rushing. If your presentation is in digital format and consists of slides, anticipate spending around one minute on each slide. However, make sure you also have an analog Plan B in case of technical difficulties, which have a nasty habit of cropping up unexpectedly right at the moment of truth.

Unconventional ideas can be powerful in the business world, but in the context of a funding pitch, a pair of conventions are worth observing. One is appropriate attire—you should strive to portray yourself as a consummate business professional and/or choose an outfit that’s suited to your line of work. Another is the hook—you should begin the pitch in a way that piques the investors’ interest. Present them with a problem or dilemma they can relate to, and offer them an innovative solution.

 Answer the following questions in your pitch:

•  What have you and your team accomplished so far?

•  What does your target market/demographic look like?

•  Who are your competitors?

•  What is your strategy for both marketing to customers and delivering your product or service to them?

•  How do you generate revenue?

•  What do you anticipate your revenue stream would look like over the next five years if you met your funding goals? Is your assessment realistic?

•  How much money do you need from the investors to whom you’re pitching?

•  What is your endgame? Do you plan to eventually take your business public, sell to an established firm, or something else? (Angel investors like to know how they will recover their investment.)

Finally, rehearse your pitch until you know it like the back of your hand. Run it by a trusted friend—if s/he would invest in your business or proposal, there’s a good chance that an angel would too.

How to Find a Business to Buy

One of the first lessons any savvy business person learns is that you’ve got to spend money to make money. The question then becomes how can you effectively spend your money or the money of your investors? This is where the issue of buying an established business comes into play. There are many advantages with finding a business that is already up any running because a staff and management structure might already be in place. The same can be said for any equipment required to run the business whether it’s a salon, gym or real estate agency. Having these elements in place can limit your initial expenditures but that doesn’t mean every turnkey business is going to be a perfect fit for your specific entrepreneurship interests. Consider these questions to ask yourself when looking for the best business to buy.

1.      What Are Your Viable Skill Sets?

The restaurant landscape is littered with dozens, if not hundreds, of failed restaurants that have collapsed merely because the new owner had no clue what they were getting into. Just because you have always fancied owning a place where “everybody knows your name” doesn’t mean you are suited for the restaurant business. On the other hand, a small fast food franchise could be the perfect business if you have a knack for management and bookkeeping. Those franchises are ready made with a textbook of valuable instructions to follow that will insure you can meet the obligations of the brand. There is no need for “out of the box” thinking to drum up business with a national franchise.

If you have strong “people” skills then you might benefit from buying a business that requires a lot of customer service and/or sales calls. If your talents are more of the “back office” sort then clearly you don’t want to have a business where you’ll need to become the face of the company. Always lead with your strength.


2.      What Effect Will This Business Have On Your Home Life?

Starting a new family might not be the best time to start a new business. The pressures on both sides of that equation could create fault lines that result in too much stress. Buying a new business means you’ll have to devote a serious amount of time and effort, especially in the start up phase. Entrepreneurship goes hand in hand with sacrifice. You might have to forgo a vacation or hanging out with the boys for poker night while you get things running. If you’re not willing to devote that time, you might not be ready to invest in a new business.

3.      Where to Find the Right Business?

Throughout the year, there are many franchise trade conventions held all around the country. These expos are a great place to find many potential business opportunities gathered in once place. Not only will you be able to meet franchise owners, but you can enter into some serious discussions with the franchise entities themselves. This is also the perfect environment to survey many options over the course of a single weekend. You might not leave with a business contract, but you’ll certainly leave with plenty of information to process. 

Financing Options for Start-ups

One of the biggest challenges for many start-ups is to find money to keep the company running. Break even point has not been reached and with expenses exceeding sales revenue , a CEO will soon need to look for financing options.

Where you get your financing depends on:

• what kind of business you are starting and industry you’re in,

• how much money you need to raise and

• what you will use the money for

Here are some of the financing options:

Family, Friends and Personal Savings

Personal savings are one of the easiest ways to finance your business. This option may be the best option in the earlier stages of the business, especially when you don’t have a product or clients. You don’t have to answer to any outside investor who only cares about how soon they are going to make their money back and not about the company. This may be your only choice if you aren’t able to attract investors. Family or friends can also be an alternative source, however be careful if they invest in your business. Is it worth losing the relationship if your business fails?

Angel Investors (early stage)

Angel Investors are investors who invest only in early stage start-ups and have been known to invest between $15,000 to $500,000 for equity in your business. Angels mostly invest once a business has been proven and has made some revenue. In certain industries, angels invest as a group, especially when they see a great opportunity.

Incubators

Incubators became popular during the dot-com boom, where they provided office space, access to mentors and IT infrastructure in return for a percentage of a business. They have become very popular recently, with an increasing number of incubators popping up around the world. Incubators work very closely with entrepreneurs by mentoring them in every aspect of the business from sales/marketing to operations. This is why many successful start-ups come from incubators. However, the success of an incubator depends on the experience of its board of directors and investors.

Venture Capital

Venture capital has become a popular option for many start-ups, however it is difficult to get financed by VCs . They are very selective in the investments they make, investing in as little as 1 start-up for every 100 proposals they receive. Due to the fast returns expected, VCs look for high growth potential start-ups that can provide them with a quick exit and a return on their investment in a short amount of time. If you feel that your start-up has a lot of potential for a VC, the best way to get in front of a venture capitalist is to network and get introduced by a mutual acquaintance.

Business Loans

Approaching a bank for a business loan is a standard path to fund a start-up. However, with the financial chaos affecting economies, many banks have become extremely risk averse. Although the benefit of getting a loan is that you keep ownership of your business – getting a loan will depend on things such as:

• the type of business that you run,

• the industry you’re in,

• and your credit rating.

However, if your business plan is solid and shows the loan officer how quickly you will produce revenue and break even, you may be able to get financed by a bank. In many cases, businesses use credit lines to manage their cash flow, and business loans to make large purchases such as equipment.

Most businesses will use a mixture of financing instead of depending on just one source. For example, as a start-up you might invest your own money for market research, then pitch investors to invest in the early stage of the company and then obtain a loan from the bank to purchase equipment. Once your company has grown, you may approach venture capitalists to finance your expansion into a larger company.