You can have the most brilliant startup idea, the best product in the market, or the best tech talent by your side, but without sufficient capital, you won’t get your startup off the ground. Money is certainly one of the most crucial aspects of launching and scaling a startup. And this is why early-stage startups around the world are increasingly turning to angel funders for financial support.
Angel investors are high-net-worth individuals and entrepreneurs who provide an ongoing injection of funds or a one-time financial investment to promising startups in exchange for ownership equity. Note that they use their own funds to invest in your startup. The investment can be anywhere between $25,000 and 500,000, depending on the business angel and your startup company.
A 2018 American Angel Study found that 90 percent of early-stage startup funding comes from angels. And with more than 70,000 U.S startups receiving financial backing from angel investors, the angel investment market— which currently stands at $26 billion—is only getting better. But that isn’t to mean you can just approach any business angel and get the funding you need. You must do your best to capture their attention and get them in your corner first. With that in mind, here’s what you need to know:
Know Your Business Phase
In addition to investing money in your startup, an angel investor also gives you access to their contacts and shares their sector knowledge and expertise to help you achieve your desired growth. And this is probably why most angel investors tend to have their individual preferences when it comes to the stage a startup company needs to be in to be fundable.
You’ll come across angels who prefer investing only in early-stage startups and those that require a track record of profitability or sales before they can invest. Some business angels only focus on injecting funds in promising but struggling ventures to revive them while others specialize in later-stage startups.
Knowing your startup’s current phase or stage will help you not only attract the right business angels but also accurately demonstrate to them the scale of your ambition. The last thing you want is to try to impress them with grandiose assumptions and claims.
Take Your Time Creating a Pitch Deck
Business angels aren’t just looking for startups they can inject their hard-earned cash in for the sake of it. They want to get a return on their investment. This is why you must clearly demonstrate to them what they will gain from funding your business and how you’re going to deliver it. And there’s no better way to do so than with a pitch deck.
To put it simply, a pitch deck is a visual document that gives business angels (and other potential investors) a reason to believe that your startup company is viable and investable. Think of it as a pitch presentation that will provide your angels with essential information about your startup’s business model, product and service offering, financial goals, fundraising needs, target market, and other key metrics.
A good pitch deck should be clear, straightforward, trustable, and easy to understand and act on. Resist the urge to overload angel funders with a long list of metrics and facts. Instead, prioritize a narrative approach with clearly explained ideas. Your goal should be to make them open to negotiations or at least make the next meeting with them possible.
Your pitch deck should also highlight your team and what makes them great investments. For example, as a software startup, your tech co-founder should accentuate their development skills and emphasize what makes them uniquely qualified to create a product. What experience do they have in programming? Do they understand the DevOps philosophy and how to use platforms like JFrog to spearhead development? Have they managed a team of developers before and what were past achievements? Many angel investors choose to invest in people over products, so it’s crucial to note these skills and backgrounds.
Showcase Potential Market Size
Unfortunately, most startup founders give a product presentation with the hope that investors will believe in their product and invest in the business. Ask any successful founder and they’ll tell you a product can be great today but become obsolete in a couple of weeks or months. Investors know this which is why they invest in the potential of a market and the genuine commitment of the founders to the business.
No matter how great your innovation or product is, resist the urge to focus your pitch on it. Instead, showcase to your potential investor the potential market for your product or service. Prove to them that you have a deep understanding of your target market and your startup can scale and become meaningful. That’s how you’ll win over their trust.
Leverage Past Successes
Unless your startup idea is truly novel, it’s important that you have something you may have done before that proves your idea or latest venture is likely to become successful. An angel investor will look for any signs of early traction in the form of strategic partnerships, early online sales, creation of a minimally viable product, or customer testimonials, or a contract from a few major clients before they can decide whether or not to finance your business.
You’re likely to receive better terms on your funding if your startup has already obtained early traction. If you have any expertise or relevant experience in the industry, be sure to detail it as well. And if your startup has received early buzz or has been featured in press headlines or publications, consider mentioning the same during your meeting.
Know Your Numbers
Disconnects between your startup’s valuation, financial projections, potential market size, fundraising needs, and other key metrics are unlikely to impress business angels. If you cannot clearly communicate how your product or service offering will solve a specific problem in the market, then you’re better off not pitching for funding.
Angel funders look for startup entrepreneurs who truly understand the key metrics and performance indicators of their company. Therefore, you have no option other than to coherently articulate your financials, gross margin, customer acquisition cost, revenue projections, and other key metrics. Failure to do so will signal the lack of seriousness and operational excellence on your part— and no investor will be willing to provide you with the funding you’re looking for.