Wealthy, experienced businesspeople are angel investors, who invest time and money in high-growth companies in exchange for equity.
It is estimated that there are around 20,000 to 50,000 angel investors in Canada, according to Yuri Navarro, former Executive Director of the National Angel Capital Organization. “In addition to the visible community, many others invest, but they don’t advertise it.”
Often, angel investors are the first to invest in early-stage businesses and that carries a lot of weight with potential investors.
A brief overview: What is an angel investor?
Angel investors are most often involved in seed funding rounds, which are the first funds you raise to figure out how your business and product will work.
A professional angel investor invests before your business has even produced revenue. However, any individual who invests when your business has not yet generated revenue could be regarded as an angel investor.
Angel investment preparations:
Be sure that you are ready for angel investments before you begin looking for them. To impress potential angels, you could invest in an advanced unified communications system – this will help your startup to appear much bigger to outsiders.
Investors will also be made aware that your employees are equipped with the best tools for collaboration. You’ll also be able to upscale and support your customers securely on any channel as your startup grows, so angels will recognize that you are ready for growth.
Ways to find an angel investor:
1. Be sure you fit the criteria
More than 2,000 angel investors belong to Navarro’s organization, which encourages companies seeking angel investments to succeed. Navarro explains: “That just shows how competitive the industry is out there.”
As startup financing involves high risk, angel investors must generate enough returns from their winning investments to compensate for the losers. It is for this reason that angel investors usually seek to multiply their money by five or ten times. Your company needs to have that kind of growth potential to attract them.
2. Don’t be unrealistic
Deal breakers when it comes to dealing with angels are mostly overestimations of the business’ value.
You should base your valuation on the measurable success you have achieved so far. The angels are aware that the company has growth potential, but they are also investing in the value of the company today.
3. Perform due diligence
A potential investor will usually request your financial statements, including any outstanding debt and information about your ownership and legal structure.
By having all the information ready, the process can be significantly accelerated.
4. Locate a potential investor
Get in touch with other entrepreneurs in your industry to learn how they found investors. Perhaps your attorney or accountant knows wealthy individuals.
Accelerators present another great opportunity for meeting angel investors. According to Bélanger, accelerators are a hot spot for angel investors. Starting a business is a challenging process and the selection process has been highly competitive. This is a great validation for angels.”
5. Develop your elevator pitch
Wealthy investors value time more than anything else. Make your business and your product or service’s story engaging, focusing on the problem your product or service solves. Describe why people would want your product or service.
If you’re going to attend the meeting, you’ll need to have completed your homework. You must know your industry and your competition—hopefully, better than the investor.
You don’t know everything, so don’t assume you do. Ask for help when necessary and welcome criticism when appropriate.
6. Prepare your company for success
Normally, an investor will only consider investments from the same entrepreneur once, so make sure you’re prepared before you get involved.
Navarro says revenue is one of the most important factors. Investing in commercialization stage opportunities is more important than investing in concept stage opportunities.
7. Make sure it’s a good match
Angel investments are long-term relationships. As soon as you identify an angel you would like to pitch, learn as much as you can about him or her. Investing in what kind of projects do they like? For what reasons do they invest? Be aware of whom you’re dealing with, says Bélanger. “They will ask lots of questions about you.”. They’re going to be your partners for a long time.”
Angels and what they should be like
You should make sure your angel is right for your business needs whether you’re targeting angel networks or individual investors. Establishing broad connections may be valuable, but focus your energy on the ones that are right for you.
Before investing, angels do plenty of due diligence, but it works both ways: you should also thoroughly vet all prospective investors. Never rush into anything, no matter how badly you need the money.
You might consider creating a database of the pros and cons of the various angels, and adding to it as you proceed.
1. Professional experience
Determine what your angel can offer in terms of professional expertise. What specific expertise can they bring to your organization? Is there a skill gap that they could fill?
Keeping in touch with people and having a good reputation is equally important. A well-connected angel can be a useful asset for building connections or attracting other investors.
2. Experiential background
If your startup was not successful, it’s a good idea to choose someone with startup experience-this should help them steer you clear of the pitfalls.
Request ratings from other companies that have worked with them. In what ways were they hands-on? Were they reactive to certain situations?
3. The working environment
The involvement of potential investors should be as involved as you wish them to be. The arrangement between you both must be agreed upon in advance.
The angel will need to be updated regularly, but micromanagement is not necessary. Depending on the angle, some may prefer to communicate face-to-face or by video conferencing, while others may prefer to receive information via instant messages.
Regardless, you need someone with great communication skills, and a versatile communications tool like RingCentral can help you stay in touch.
4. Sense of self-worth
Values and goals should be shared by your angel. Entrepreneurs need investors who are excited about their startup, but also unafraid to tell them when a concept isn’t working.
In exchange for funding, they shouldn’t ask for unreasonable demands (such as being named as a cofounder). Make sure you get along, communicate effectively, and enjoy working with one another.