Four Ways To Get An Angel Investor To Part With Their Cash

Posted on 06. Sep, 2010 by Natalie in Entrepreneurs, Featured, Financial Know How

It’s a well known fact that one of the biggest challenges a new business faces is securing adequate financing.

While I am a big advocate of bootstrapping for as long as you can, there comes a time when you just need more money.

One of the primary ways that you can do this, if you are gearing up for some serious growth, is to get an injection of capital from angel investors.

So what is an angel investor and how do you, as an entrepreneur, go about getting them to part with their hard-earned cash?

An Angel At My Table

Angel investors are accredited investors, which means they are people with a net worth of $1 million or an annual salary of at least $200,000.  Angel investors provide funds to start-up companies in exchange for a stake in the company.

Let’s say that you believe your company is worth $50,000.  If you can convince an angel investor that it is worth this much, an angel may give you $10,000 for a 20% stake in the company.

Now, you not only have capital to get your business off the ground, but arguably even more important, you have the expertise of a successful business woman or businessman.  Angel investors are often entrepreneurs themselves who’ve had success in business and now want to give back.

If you pick the right investor they can offer you incredible insight and wisdom throughout the early stages of business development. Depending on your relationship with each other and how big a stake they invest, they may even want an advisory or board position.

Attracting angel investors is no easy task though, especially if your business idea is still in the ideation phase, meaning you have no revenues, sales, or earnings.  There are certain tips, however, that will help you secure financing from an angel investor.  So listen up!

1. Get a good advisory board

If you can secure an advisory board of people who have generated solid returns for investors in the past, you will have a better chance of convincing potential investors to commit their money to your business idea.

This is especially true if you have no formal entrepreneurial experience.  Angel investors want to be sure that someone is on board with this project that has a track record of success.  If they see that your board has that already then they’re more likely to overlook your lack of one.

An advisor will often come on board for some equity in the company by way of shares. Although some will just advise because they believe in you and your idea and they know that in the future there will be an opportunity to receive goodwill in return.

2. Put your own funds on the line

Many angel investors will not be interested in financing a company in which the owner is not investing her own capital.  Think about it. If you are unwilling to put your own money at risk in your own business venture, then why should they put theirs at risk?

By having your own skin in the game, it means you are seriously dedicated to seeing this business succeed. I know some investors who won’t invest in someone unless they’ve had a previous business fail, or that they lost their own money in.

3. Use your connections to get introductions

With my previous startup, when we were seeking investors, the most useful way to get in front of investors was via a credible introduction. Often our advisors or current investors were more than willing to make these for us.

Angel Investors tend to stick together and trust in each others’ investment decisions and the key to getting their attention is to have that personal introduction from someone they know and have a solid relationship with.

If you don’t know any angel investors then get out and network, particularly at events where they will be hanging out. There’s even speed-dating with potential investors these days.

Many Angel investors are part of forums that you can Google to find out what types of industries they invest in, what they’re not interested in, amounts they’ve previously invested and so on. Get digging.  

4. Find the right angel for your business

Most angels like to invest in companies in a particular stage of development.  Some like to invest in companies still in the ideation phase, while others want to see solid revenues, sales, and earnings.

Make sure you have the right type of investor for you. Remember it’s a two way relationship so you get to check on their credentials and investment history too! Find out who else they’ve invested in, how much involvement they have in those companies and what their terms and conditions.

There’s a lot of `tire kickers’ out there. This is a term for people who think they’re important and act like they’re going to invest but are actually have no intention to. They’re more likely interested in speculative activities like fx trading.

Do your homework and try to reach out to angels that are interested in investing in companies in your stage of development. Remember it’s a long term relationship that needs to work for you both.

For fantastic investment pitching advice check out this post and for more tips on how to pitch like a pro and get funded read Angel’s story here.

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Tags: finding accredited investors, Forex Traders, funding your company, How to get angel investors, how to pitch to an angel, pitching like a pro, top ways to get money for your business