Why Angel Investors Do Invest in Your Startup
Fundable founders prioritize these messages in their pitch
I clearly remember the phone call I had with a founder where I knew within the first five minutes she would be successful in raising outside capital. She’s what I consider a “fundable founder.” Impressive, clearly communicative, and zero BS. Obviously other factors come into play when angel investors decide when and where to invest, but first impressions with founders are key.
I frequently answer questions around “why didn’t my startup receive funding” (more on that here), but it’s worth exploring what drives angel investors to actually write checks to entrepreneurs. While angels use their own selection criteria to make independent investment decisions, reasoning often falls into the below categories.
Impressive founder(s). Angels get into the investing game to help entrepreneurs succeed through those challenging first years. The obstacles startup founders face are never ending, often leaving entreprenuers exhausted with their backs up against a wall. Investors have to believe the founding team can successfully navigate the unchartered territory and come out ahead. Transparent, persistent, coachable, passionate, team leader. Let your top entreprenueral qualities shine through and leave angel investors with a heck of a first impression.
Remember to care for your investors through the entire courting process. Even after an investor commits, nothing is finalized until documents are signed and funds are collected. Don’t lose angel interest for poor communication along the way. Continue to foster the relationship with your investors and remind them with every interaction why it’s a good idea to bet on you.
Personalize the problem. Investors love to see legit problems being tackled by startups. It’s even more fun when the ‘problem’ is a pain of their own or someone they know. Consider your audience’s backgrounds or personal situations prior to pitching to determine the best way to connect. If your company’s existence stems from your own challenge, kick off the pitch by sharing your story. The founder mentioned above used this trick exceptionally well. Immediately following introductions she dove right into an emotional personal journey that catapulted her to create the business she was raising capital for. Not only did her story pique my interest, it also tugged on my heart strings. Resonating with individual angels increases the chance they’ll consider an investment.
Realistically scalable. At the time you start pitching angels for investments, you likely already have some level of revenue traction and user base. Can you clearly assign a customer acquisition cost to those users? Have you identified the specific target customer you are selling to? How long does it take to close a sale? My guess is you have an answer to each of those questions, but the reality is the answers are still a bit of a guess at this stage.
First customers are often beta users, potentially grandfathered in for free, hand-held through the onboarding process and take numerous conversations to close. None of which is scalable. You likely have some glimmers into what it will take to scale your product or service at this point, which is exactly why you are wanting to raise growth capital. Angel investors understand this exercise, and they expect it. What they want to see is that you understand it as well. Investors also want to see how their funds will grow the business. Can their investment buy you five new customers? Twenty? Can the capital be used immediately to impact revenue traction or are you working with a long sales cycle?
Angels are going to look for clarity around your sales strategy. A solid plan with identified target customers, the best methods to reach them and the cost to do so will increase your odds with angel investors.
Large(ish) market. Following the ability to identify your key customer, angels are hoping to see a large pool of these potential users. It’s easy for entrepreneurs to make nearly any market look massive in pitch decks. The reality is that those initial assumptions are just not accurate. The more you learn about your core customer, the more you will define and ultimately shrink the available market. That is perfectly fine, by the way! This clarity will streamline your sales efforts and should improve metrics across the board (lower customer acquisition cost, shorter sales cycle, etc.) However, most angels are going to want to see a market that is large enough to support both your long-term revenue goals as well as the inevitable competitors. Startups that offer solutions to a very tight, niche group of users will likely struggle to raise angel funds.
Strong exit potential. While many angels want to believe (and hope!) they will invest in a unicorn, the chances are fairly slim. The great news is that angel investors can still make strong returns off diversified portfolios of companies that come nowhere close to unicorn status. A strong list of potential acquirers can include competitors, customers, corporate ventures, large tech players, and PE firms. As you build out your exit strategy in the early days, consider multiple angles of play. Providing a wide range of acquirers will show investors numerous paths to potential returns.
As I frequently remind entreprenuers, angel investing can be an emotional decision or even a gut instinct for some. Most angels have heard hundreds of pitches over their years and know instantly (within a meeting or two) if they want to invest. Do your research ahead of time and fine tune your story focusing on the key areas listed above to increase your odds with angels.
First impressions matter.
Disclaimer: The opinions expressed do not necessarily reflect those of the Nebraska Angels organization or its members.
