Are you planning to build your startup, but lack the necessary financial resources? You may be tempted to turn to venture capitalists. I must warn you that venture capitalists are more likely to fund established businesses that needed expansions. Venture capitalists opt to invest where risks are less. Your other option would be angel investors.
“An angel investor or angel (also known as a business angel or informal investor) is an affluent individual who provides capital for a business start-up, usually in exchange for convertible debt or ownership equity.” – Wikipedia.
It is easier to receive financial help from these individuals, because they are willing to help startups. In addition, angel investors or angels, offer mentorships to help you build your business. Compared to venture capitalists, angels are more tolerant about how you pitch the viability of your business.
Marty Zwilling, a veteran startup mentor declares that angels have biases that you can use to your advantage. You should approach investors well-prepared to discuss how your business can profit. So, how can you win an angel’s help? What are their biases, and how can they help you? Below are tips from Zwilling: (Read article here.)
How to win an angel investor
1. Angels invest in people, more often than they invest in ideas
It is important that you build on your credibility as an entrepreneur. It is equally important that you pitch yourself as good as you pitch your business idea. As I have mentioned earlier, angels are willing to help startups. It is safe to assume that they are interested in your ability to run the business than on your business idea. Likewise, angels are also interested in your experience. Zwilling advises:
“For maximum credibility, start networking for potential investors to build relationships a few months before you start asking for money. They also favor entrepreneurs who are experienced in starting a company, and experienced in the business domain of the startup… In this case you need a partner who has deep domain knowledge and a track record of building businesses.”
2. Present a business plan
A business plan is a startup essential. Whatever financing entity you approach, they will always ask for your business plan. You need not impress an angel with a complicated business plan. A simple and well-written business plan will suffice. Zwilling reveals:
“All professional investors know that entrepreneurs who start a business without a written plan almost always fail.”
3. Ask help from local angel investor
Angels are interested in local opportunities. Focus your efforts in securing financing from a local angel. Equally important to angels is the amount you need for your startup. An angel investor limits individual investment to less than $ 250,000. Zwilling writes:
“Angel investors tend to limit the size of individual investments to $250K or less, and even in groups they rarely consider requests for more than one million dollars. If you need more, you need to focus on venture capital territory.”
4. Your financial projections and opportunities should be sound
Angels want to help you, but they also have to gain something from the aid. If your financial projections are too low, they might be hesitant to invest their own money. If your projections are too big, they will doubt its soundness. Zwilling contends:
“Your fifth-year revenue projections better be between $20M-$100M. Smaller numbers mean a low return, and larger ones aren’t usually credible.”
5. Your character and business domain must be unblemished
If your track record is filled with failures, don’t waste your efforts on angels. Remember that they invest in people than in ideas. Similarly, if your startup domain is unstable, you are more likely to face rejections. Zwilling adds:
“Angel investors are people too. They expect you to understand their motivation, respect their time, and show your integrity in all actions. They probably won’t respond well to high pressure sales tactics, information overload, or bribes.”
You may not hit gold the first time you approach an angel investor. Don’t give up. The above tips are not the only ones that can increase your odds at gaining the necessary funding to build your business.
What are your thoughts on how to win an angel investor? Leave your comments below.
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