Many startups face the challenge of finding the funding to bring a product or service to market. Though some may still have to bootstrap, securing financing has fortunately become easier to secure.
Startups can now crowdfund, join a startup incubator or accelerator, or approach angel investors or venture capital firms, among many other options.
Here we explain how to find angel investors for your startup.
What is an angel investor?
Angel investors are high-net-worth individuals who invest in the early stage of a startup, usually in the pre-seed or seed stage.
In exchange, the angel investor receives equity or convertible debt, which can be changed into equity at a later date.
An angel investor is typically a wealthy individual who funds a startup for a stake in the company’s ownership. Angel investors are a good option when a startup doesn’t qualify for bank financing, or is too small for a venture capitalist (VC) to invest in.
As opposed to venture capitalists who demand fast high-revenue growth rates, angel investors are more concerned with the passion and commitment of the founder or co-founders, and the market opportunity they’ve identified.
Angels have a more hands-on approach and invest where they can play a part. Therefore, do your research to identify an angel investor who would be a suitable fit for your startup. Consider their money, personality, experience, and network.
Where do angel investors get their money?
The average angel investor is usually someone who has sold their own startup and wants to invest in others. Alternatively, they may be successful individuals who have made money from their careers and want to get into startups. Lastly, wealthy families may invest through their family offices.
Do you need an angel investor?
At the beginning of your startup, you will most probably use your own money. Later, you may borrow from friends and family – but in due time, you will need more money in order to grow. At this point, you might need an angel investor.
When to bring an angel investor aboard
It’s best to bring an angel investor on board when you have exhausted all other financing channels. Other appropriate times include when you want to reach your goals faster than you would alone, or to minimise your own financial risk.
You can also look for angel investors if you need to hire talent, buy equipment, are short of cash flow, or need office space, among other potential needs for your startup.
Some quick pointers about raising money:
1) Have your pitch on point
An angel investor may have 50 startups pitching to them in a month – yet, in a year, they may invest in only 10. So, make it easy for them to say yes to you: spoon-feed them everything they want to know; don’t make them have to work hard to understand your pitch.
2) Create some FOMO
Create an underlying fear of missing out (good old-fashioned FOMO) in potential angels. To do this, generate a perception of traction in the investor community and show the early adoption of your product.
3) Converting the first angel is the hardest
Once you have one angel investing in your startup, it’ll be easier to attract others. In line with the human behaviour of looking for social proof, a potential angel investor might say, ‘If another investor has put in their money, then I will too.’ Therefore, work tirelessly to get your first angel investor through the door.
4) Accept that timing is out of your control
For example, some angel groups meet monthly or quarterly, meaning waiting to meet them and receiving a decision about whether you’re a good investment option for them.
Angel investors’ typical investment profile
Angels favour investing in startups within their own industry. For example, a real estate mogul is more likely to invest in a real estate startup. In this case, angels would know the industry’s ins and outs, and have the contacts helpful for building and growing the startup.
Nonetheless, this doesn’t mean that angel investors never invest in startups outside of the industries they have experience of.
It’s good for startup companies to evaluate what additional value potential angel investors may bring to the table, beyond money. Having active angel investors will be an asset to your startup.
How to find an angel investor
Getting to the meat of the matter, where do you find angel investors? This may feel daunting, like looking for a needle in a haystack.
Nothing could be further from the truth. Angel investors are all around you, and have become much more accessible in recent years.
Here are some places where you may find an angel investor:
1) Friends and family
Friends and family are an excellent starting point. If they include a network of high-net-worth individuals, you can pitch them your business idea.
This can be one of the easiest ways to secure funding for your startup; studies show that people prefer to invest in people they know over people they don’t.
If there isn’t a high-net-worth individual in your circle, don’t be afraid to ask around; your friends and family may know someone. The six-degrees-of-separation rule couldn’t be more accurate when looking for an angel investor.
Lastly, if you’re comfortable going into business with family, ask a well-off family member to invest in your startup. This option isn’t for everyone, but if it feels right, go for it.
2) Angel groups and networks
Another place to look is in angel groups and networks, where individual angel investors come together to invest collectively.
The amount of these groups has grown exponentially in recent years: according to the Angel Capital Association (ACA), there were only ten in 1996.
A group of angel investors usually has between 100 and 200 members. Advantages of a group include a lower risk of investment for individuals, and better due diligence, owing to their numbers. Additionally, they can make more sizable investments, have a diversified portfolio of investment, and groups gain easier access to startup deals.
To find an angel investor group, search LinkedIn, seek personal introductions, attend pitch night events, and attend local coworking spaces, incubators, and accelerators.
Look for groups in your region and those that invest in your industry, and establish whether mentoring is offered. The ACA website may be helpful in the USA, or if you’re in the UK check out the UK Business Angels Association.
Angel investor events
If your startup is in its early stages, angel investor events may be one of the best places to find an angel investor, allowing one-on-one opportunities to pitch your idea.
If you are passionate and exude enthusiasm about your idea and go to enough of these events, you may bag an angel investor sooner than you think. To find the next angel investor event, go to Eventbrite and search in your area.
Technology has increased accessibility to angel investors. A quick search online can give access to thousands of angel investors.
Here is a list of platforms in the US and the UK:
- Angel Capital Association
- Investor Hunt
- Seed Invest
- Angel Academe
- Angels Den (Angel Network)
- Angel Investment Network (AIN)
- Cambridge Angels
- Henley Business Angels
- Minerva Business Angel Network
The nature of funding and operation varies across these platforms. Some charge, others are free, and each has its own terms and conditions. So, do your research before choosing which network to engage with.