angel

 

Do you have a fantastic business idea that you want to pursue, but you don’t have the money to start it? Or maybe you’ve already started a business that is seeing some revenue, but you need more money to grow. 

Enter the angel investor, who can provide you with the funding that you are looking for. 

What is an Angel Investor?

An angel investor is also known as a seed investor or private investor. Usually, an angel investor is a wealthy individual who provides capital to entrepreneurs in exchange for a piece of the company. This piece is known as the equity portion of the company.

Angel investors don’t always ask for equity, and they can sometimes ask for royalties or even provide a loan or credit at an interest rate to the investor.

Angel investors are often associated with tech companies. While many angels do invest in tech, they are not exclusive to the industry. There have been angels who invest in all kinds of industries, such as finance, health, and restaurants.

Step 1: Prepare Your Business for Angel Investors

Angel investors are risking their fortunes on funding businesses that have a high failure rate. As such, they can choose to be very selective in who they fund. Investors are either looking for an entrepreneur who has extensive experience in the field they are thinking of taking on or an existing business that is already generating revenue.

If all you have is an idea for an app but no experience in tech or business, you’ll likely find it challenging to land an angel investor.

The stats are stacked against you for landing an angel investor, so you better have a great business plan and idea, a fantastic team behind you, and plenty of experience. Some sources show that as little as 5% of companies that seek angel investments find success. 

Because of the high failure rate of early-stage businesses, angel investors are looking to multiply their investments by 10 or 20 times. You have to show them that you are capable of doing this. Always keep in mind that at the end of the day, this is what the angel investor cares about.

Step 2: Understand Your Target Angel

Understand who you’re looking for. Angel investors can come in many shapes and sizes. Have a clear idea of what type of background and expertise the investor should have. You may have to travel to where the investor is found. The ideal angel investor should not just be someone who writes checks. 

They should be someone who can provide expertise and connections with other people in the industry you are seeking to break into. 

Step 3: Prepare Your Term Sheets and Presentation

How much money do you need? What will you use the money for? How much of your business are you willing to part with?  These are all questions that you will need to find answers to. Coming up with the proper valuation for your business idea is difficult, especially if you aren’t generating any income yet. 

You have to be realistic in the valuation of your company, not in the future but at the present time. This involves taking a realistic look at your business and its potential. The dream of every angel investor is if your company will make an initial public offering (IPO) and issue stocks in the company. 

It would help if you also prepared multiple offers, for varying amounts of equity of your company that you are willing to part with.

Related: How To Grow Your Startup With The Help Of An Angel Investor

Step 4: Network with Both Individuals and Companies

This is where you will have to hustle. Go to where the angels are. Whether that is business networking events, pitch meetings, charity events, you have to find out where the angels in your city hang out and go there.

Tap into your existing contacts first, if you think there is anyone who could be a suitable angel for you, pursue them. 

Don’t just limit your search to face to face opportunities. You can network on platforms such as LinkedIn and AngelList.

Step 5: Set Formal Pitch Meetings with Newly-Found Contacts

Now that you have the contacts and your plan is prepared, it’s time to start pitching your terms to the angels. Make sure your presentation is prepared well and easy to understand. Get other people to critique and evaluate your presentation. 

Set up a meeting, then go and pitch your angel and hope that you’ve done everything in your power to have convinced them that you are worthy of their money.

Conclusion

Finding an angel might not be easy, but now you have a simple five-step plan to go after them. Come up with a good idea and land that angel to fund the business you’ve been dreaming about.

 

Christopher Liew
Christopher Liew, CFA

Christopher Liew is a CFA charterholder who helps readers find the best ways to save and make money at Wealthawesome.com. Read about how he quit his 6-figure job to travel the world.

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