How To Prepare For An Angel Investor

By Dan Handle, 21 Jan 20:26

Investor ... Angels Investor ... Angels are private investors who finance business start-ups or new business ventures. They generally are an ideal source for "seed" capital, usually up to several hundred thousand dollars worth of funding.

Such investors are referred to as "angels" because seed, or start-up capital, is the toughest to obtain and may be unavailable from other sources.

While angels are best known for funding start-ups, they tend to prefer companies that have a minimal or at least a "bootstrap" operating history where the work experience and track record of the entrepreneur demonstrates his or her capacity to turn their enterprise into a complete success.

Unlike heaven's resident beings, angel investors don't just appear out of thin air. For your best shot at landing an angel for your company, take the following steps...

1. Prepare Your Materials
The Elevator Pitch. This is a verbal presentation conveying the basic concepts of your business venture that is brief enough to be "pitched" to an angel while sharing an elevator ride with them. Also prepare a written version in case they want it emailed or faxed to them. Your pitch should be compelling and motivate them into wanting to take the next step (i.e., schedule an actual meeting or learn more).

The Executive Summary. This is a document providing a complete overview of your business venture in only several pages, a sort of mini business plan that includes information on your company, its mission and location, success to-date, the proposed venture, its marketplace, the competition, management team, capital requirements, your financial plan for raising money, and risks and opportunities you are offering to investors (i.e., why they should invest).

The Budget. By completing this step, you will be able to show exactly how much money you need to get going, and what you anticipate this money going to. For angels, this figure should be between a few thousand to a few hundred thousand dollars, as this is the range in which angels fund.

The Business Plan. This is something you'll need for angels who prove seriously interested, which is of course what you want. A business plan includes a full description of your business venture, its personnel, projected profit and loss, etc. and generally runs about 20-30 pages. Even if you decide not to go the angel route with your funding, you'll still need a business plan for virtually any enterprise you hope to embark on.

Prepare A Proposed Financial Package. Look into and prepare information on the different financial packages you can offer your angel, including debt financing (i.e., a loan with a low rate of return) or equity financing (with different rates of return). Most angels prefer equity (i.e., getting a piece of your company in return for investing) with some guaranteed exit provisions detailing how and when they may recoup their investment with interest (i.e., exit your company with their money and some profit).

2. Lay The Groundwork
With the materials you created in step one, you'd already have a solid foundation for landing an angel. But there's still a lot of footwork to be done to make sure angels find your company attractive.

Research Angels You're Planning To Approach. Determining the following will help you decide the best people to approach, as well as how best to approach them. How did they make their money? What are their interests and operating style? What are their skills? Who are their contacts? Who else have they funded and what was their experience with them (i.e., they just funded a company in your industry and got burned)?

Register With Angel Networking Firms. There are networking firms and websites that match up prospective investors with small businesses. These businesses, which generally charge a fee for their services, usually are passive in their matchmaking and operate through providing information to businesses looking for funding and investors looking to invest, allowing entrepreneurs and angels make their own "match."

Going through this process - ferreting out the information they require - will help you develop or refine your presentation and get in a state of readiness for an angel. Responses to your business - or the lack thereof - can also provide valuable feedback on your presentation's appeal and the likelihood of finding angel funding.

Make sure to include your preference for an "angel" on your information sheet as most of these firms also service venture capitalists.

Locate Common Ground. Were you referred to them by someone you both know? Do you go to the same church or belong to the same organization? If you can create a sense of "common ground" with a prospective angel, it is more likely that your funding proposal will be taken seriously, or at least get moved to the top of their stack.

For more on locating personal investors, see How-To Find A Business Angel.

3. Initiate Contact
By now, you've greatly increased your chances of coming into contact with an angel. But what do you do when you have one face-to-face?

Be Prepared To Pitch And Follow-Through. Your opportunity to pitch an angel can come anyplace, anywhere and at anytime. Have your wits about you, make sure to have your elevator pitch ready to roll with passion off your tongue - no matter what your circumstance or occasion. Don't forget to get their business card. Have materials ready. Be ready to meet that very afternoon. This might be your one and only shot!

Always Look For More Than Money In An Angel. Many angels are interested in serving as advisors and/or mentors. Angels also are frequently willing to help you further by using their own connections to help you find additional funding and/or other vital elements, like a mission-critical strategic partner. Ask them.

4. Verify You've Found A True Angel
Make sure your angel is really an angel (and not a devil in disguise) before you go into business with them. This transformation can usually be avoided if you:

Always make sure you know the background and track record of the person you are dealing with. Research them fully. After all, this is your "baby," your business and livelihood we're talking about. Talk with other people they have funded or been in business with and learn their experience with them.

Have all financial and business arrangements worked out fully before you "get in bed with them." Never assume anything until you have it in writing and the ink is dry.

Make sure they understand that their funding to you is not a loan but a risky investment - one that they may not ever see again. (This is especially important when your angel turns out to be a family member or a friend.)

Be alert to problems arising before you sign your deal. Keep your eyes wide open. Compare what they say to what they do (i.e., they say they want to fund you but keep finding reasons to push the timing back, or they say they don't want control but haggle over every detail of your business). If they act this way before you even sign your deal, be advised you may have a devil rather than an angel on your hands.

Angels willing to fund your business can be found just about anywhere. If you are prepared, you can give them your best possible shot and hopefully secure the start-up financing you need.

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Tags: angel investor financing