With all the excitement around angel investing, many startups believe their good idea will make finding angel investors simple. In reality, it's not as easy as it looks in the movies and on TV. Most entrepreneurs hear a lot of "no" before they finally get to "yes."
I belong to a community of angel investors and regularly evaluate high-potential startups for early seed funding. I'm also a business advisor who works with companies on developing and executing key strategies, and on educating them about running their businesses. Helping small businesses achieve their goals is a passion of mine.
Here are six things you can do to improve your company's odds of finding financial benefactors.1. Be Selective
Not all investment opportunities are the same because not all companies are the same. Some types of businesses are more attractive to investors than others. So the first thing you need to do is determine which type of business you have. That will make the process more efficient and less frustrating for prospective investors (and for you).
As a business leader, your time is your most precious commodity. There's no sense squandering it pursuing opportunities that have little or no chance of success.2. Be Honest
I don't mean "be honest" only in the sense of behaving in an ethical and transparent manner — although those qualities are important, for obvious reasons. I mean "be honest" in evaluating your company's appeal to prospective investors. No company is attractive for all investors, and you don't need your company to be. You will, no doubt, talk to a number of investors before you find the one(s) who align with you and your company.
Of course, you instead may find your idea doesn't appeal to angel investors at all. That's not to say your dream isn't worth pursuing — just that you might want to explore other methods of financing your startup.3. Be Prepared
Whether approaching an angel investor, venture capital firm or traditional bank, you must be ready to produce accurate documentation of your financial status. Beyond these common requests, there's no set protocol across organizations. Many investors look for more in-depth figures, such as recurring revenue, customer lifetime value (LTV), cost of customer acquisition (CAC), month-over-month growth (MoM), unit economics and monthly burn.
Regardless of the approach, your goal should be to establish trust. By demonstrating a high level of responsibility with your own money, you'll increase investor confidence that you'll also be responsible in handling theirs.4. Have Accurate and Realistic Numbers
In addition to providing a true picture of your current financial situation, you need to support your projections for success with solid data. What's the potential market size for your product or service? What are the associated risks? What traction does the company already have? What are your critical differentiators, such as patented technology or proprietary processes? What are your key performance indicators (KPIs)?
Over time, angels get a feel for what's realistic and what's not. Respect their expertise.
5. Create a Great Team
Many company founders fixate on the core idea behind the company, for good reason. A marketable product or service is the most vital part of the equation. But it's not the only part.
Investors are also interested in the human component of your company, starting with you. Are you open to feedback? Are you focused but flexible? How committed are you and your team? If you're proposing a startup, are you still working another job? (It's hard to build a company in your spare time.)
Just as important, what kind of team have you assembled? Do you have the right experts and advisors available to make your vision a reality? Have you already got a solid network of outsourced service providers, such as a bookkeeper, CPA and lawyer?
6. Know Your Long-Term Strategy
Building your company will not likely follow a linear path and will instead be a journey with many twists and turns along the way. Most investors recognize this, but they still want to understand your thinking around where you'd like to be headed (e.g. you should have a viable exit strategy).
The bottom line: If you can clearly convey where you are and where you're trying to go, investors will be more likely to try to help you get there.
Invest in Your Own Success
When seeking angel investors, entrepreneurs often fixate on the angel part and overlook the investor component. While the angel might like you personally, what really interests them is the potential to make a solid business investment.
So before you approach an angel investor, take a good look at your proposed startup and try to see it from their perspective. The better you anticipate and proactively address their questions or concerns, the greater your odds of securing not only the initial investment, but also your business' long-term success.