Five Tips for Getting an Angel Investment in Your Startup
Posted on 03/25/19 by Sarah Van Velsor
Has your early-stage, high-growth startup ever considered raising capital and wanted to know more about Angel investors and what they look for? Last week, East Coast VentureCon had some leading angel investors on a panel to share tips and best practices with the audience of entrepreneurs.
An angel investor is usually a high net worth individual who provides financial backing for small startups or entrepreneurs. The funds that angel investors provide may be a one-time investment to help the business get off the ground or an ongoing injection to support and carry the company through its difficult early stages.
Angels can be someone in the entrepreneur’s network such as a friend or family member, an individual that has a connection to your product through personal or professional experience or someone that is a “professional” Angel and has a portfolio of angel investments. According to The American Angel report, about 11% of Angels are in the mid-Atlantic region and 55% of Angels were previously the founder and CEO of their own startup.
So how can your startup find one of these Angel investors? Panelists emphasized that there is no one way to pitch an angel investor, but had a few tips:
- Do research to identify the right type of angel investor.
Be sure that the person you are targeting has some type of experience or connection to your product, cause or industry. You’ll be wasting your time pitching someone that isn’t a good match for your startup.
- Make sure that your anticipated future returns are big enough.
Angels are looking for at least at 10x return on their investment within five years, if not more.
- Be Sure Your Angel has Deep Pockets and Connections.
A good angel will have the ability to invest in future rounds of your company and know people that can help you get funds. They also should have expertise in your industry sector.
- Pitching an Angel is different than pitching a portfolio manager.
An angel wants returns, of course, but they also understand that your startup is still early. Angels are interested in your vision and where they can contribute to your startup since they often want to be involved in providing guidance, not just cash. Sell the vision not just the numbers.
- Incubators and accelerators can help level the playing field for diverse entrepreneurs.
Angels tend to invest in the things that they know about so that inherently creates bias. Only 22% of angels are women and 3% of angels are people of color. However, panelists advised that incubators and accelerators can help level the playing field for these types of founders by connecting angels to entrepreneurs that other people aren’t looking for. This is especially true now that studies are showing diverse team helps the bottom line. Early stage companies that have at least one female in the C-suite team outperform those that don’t by 16%.