‘Angel investment’ is a misleading term. The men and women who provide entrepreneurs with that crucial early capital have neither halos nor wings, and they certainly don’t part with their money out of the kindness of their hearts. (Watch any episode of Dragon’s Den if you need convincing.)
Nonetheless, when you find the right angel, they can have a miraculous effect on your entrepreneurial fortunes. The good news is that there are thriving communities (or should that be choirs?) of investors, often high net worth individuals, who have the money and the inclination to help.
The bad news, of course, is that there are many times more wannabe entrepreneurs or nascent business owners competing for the investors’ attention than there are angelic ears to hear their prayers. So how do you get yours heard?
1. Leave no stone unturned
There are clearly numerous funding options for early stage entrepreneurs – from second mortgages and maxed out credit cards to growing gradually from a part-time project to a full-time job. If you want to get angel funding however, your best place to start is your own network.
Andrew Needham set up commercial venue-finding platform HeadBox (it’s been called the ‘Airbnb of meeting spaces’) in 2015. It was his second business, which would provide him more than just experience when it came to finding funding.
‘I started with the shareholders who had backed me in my previous company, and combined that small group with what I learned from government backed incentive-based schemes,’ says Needham.
The great thing about networks is that you have access far beyond your immediate circle. ‘Six degrees of separation is really true when you’re raising money. Follow up every single contact or contact of a contact. There were a number of times when a potential investor may not have actually invested themselves, but introduced me to someone who then did,’ he says.
2. Beware short term dosh
It can be tempting, after spending all that time unturning stones, to jump immediately at the first offer you get. This would be a mistake: the terms matter. ‘Sometimes you forget to take a step back, just looking at the round that’s in front of you, but not thinking of possible rounds that may come further down the line,’ says Needham.
Entrepreneurs need to walk a tightrope between funding their growth and avoiding too much dilution - giving away more and more of your company with each successive round. If you’re not careful, you’ll end up with a fantastic business but you won’t actually own any of it.
2. It’s not what you know – or how much money you have
In the same vein, the quality of an offer isn’t just to be found in the financials. The ‘who’ is important. It’s hard to put a price on expertise – or reputation.
‘In our latest round we had Johan Svanstrom, the global president of hotels.com and former InterContinental Hotels Group CEO Andrew Cosslett. These guys have very relevant expertise in the hospitality industry, but it also helps in terms of attracting other investors: people think they must be on to something,’ says Needham.
Perhaps just as importantly, you need to make sure you can actually work with your angel, because they will have the power to make an already tough job harder and distinctly less rewarding. There’s also no guarantee they’ll bring good advice, just because they say they have it.
‘I’ve seen so many entrepreneurs at an early stage, where some person comes along and brags about what they’ve done,’ says Sebastian Siemiatkowski, co-founder of Swedish payments unicorn Klarna. ‘If someone sounds impressive you might be blown away and take them on, then they’ll sit on your board and give you all this crappy advice for a couple of years, and you listen to it.’
4. Nail your elevator pitch
It may be a cliché, but the elevator pitch is an essential tool in the fundraising entrepreneur’s toolbox. You have to test it, perfect it and practice it until you know it back to front and inside out. You may well need it at a moment’s notice, after all.
‘I remember pitching over the phone to a potential investor from the back of a cab. It was literally, you’ve got two minutes, give me your elevator pitch. They said that’s interesting, come and talk to me. I’ve had to travel three hours on a Sunday night to go to someone’s house to do that,’ Needham says.
In other contexts, you’ll need a more detailed presentation. On platforms like Syndicate Room, Crowdcube, Seedrs and others (Needham got some funding through the less well known Wild Blue Cohort), it will be more like an 8-10 minute pitch, with 10-15 slides.
‘You’re telling a story, succinctly, and getting across that this is something that you eat, sleep and breathe, every day. What you’re trying to achieve is that people will want to see you again – it gets you that face to face meeting,’ says Needham.
The need for preparation is no less once you get your foot through the door either. ‘Particularly with high net worth people, they do tend to judge you on your command of the business plan and the numbers and assumptions that are behind it,’ Needham says.
5. Don’t give up
You may have the best idea in the world, but if you can’t get it off the ground, it will forever remain just another idea someone had but didn’t do anything with. On the other hand, you may just think it’s a great idea. There’s only one way you’re going to find out.
That means being perseverant. ‘You can get a lot of noes,’ says Needham. ‘But people who say no sometimes introduce you to someone else, and that leads to the next. You’ve just got to keep believing: tenacity and doggedness are really key to fundraising.’
Image credit: P. B. Obregón/Wikipedia