Angel investors can nurture your fledgling company from its early growth stage to the point where institutional investors and venture firms give you a serious look. Keep these tips in mind as you embark on the hunt for investors.
Four Tips for Securing Angel Funding
Angel investors typically enjoy a high net worth and dedicate a portion of their piggy bank to helping entrepreneurial companies. Angels differ from venture capitalists in that they typically fund smaller amounts — anywhere from $25,000 to $1 million — and they usually have less-stringent guidelines.
But that doesn’t mean they throw money at every idea or pitch that crosses their desks. Following these guidelines can help you nail down that important first or second stage of funding:
1. Explain why you need funding, and how far a given amount can take you.
It’s critical that you illustrate how far a certain amount of funding can advance your business — especially if your company isn’t generating any revenue. Be prepared to defend your reasoning, but be cautious about clogging your presentation with dull financial information. Develop a quick-hitting financial model that addresses budgeting and costs in a succinct manner. If you lack experience with financial modeling, bring in an expert.
2. Seek out regional business development organizations.
Business incubators can be a hotbed for angel investors, as well as for early-stage entrepreneurs. Working with a business incubator can provide you with experts in your field, mentoring and collaborating, and a crucial network of contacts that eventually could lead to angel investment.
3. Find angels who specialize in your field.
Many angel investors belong to groups that have a well-documented history of past startups they’ve helped fund. Researching their past investments can help you find angels with expertise in your field, and who may be better able to recognize your company’s potential. Keep in mind that many angels also are former entrepreneurs who once stood in your shoes. Ultimately they may not provide you with funding, but you still can benefit from their ideas and experiences.
4. Keep trying.
Harry Potter author J.K. Rowling was turned down by a dozen publishing houses on her first novel. You may not succeed in raising seed capital in your first dozen pitches to angel investors, but you’ll gain invaluable experience and poise as you answer questions and defend your business plan.
Remember that you are miles ahead of other entrepreneurs in the funding queue when you have created a paying customer base versus just having a good business plan and an idea. Demonstrating your company’s revenue potential can be the icing on the cake that makes angel investors reach for a slice.
Looking for angel investors? The Angel Resource Institute lists angel groups in the U.S. and Canada, and the Angel Capital Association is another good resource.
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