Financing Your Business

How To Use Angel Investors To Fund Your Business

There are many stages of a business’ lifecycle. At the onset, companies initially start off as simply an idea, where owner(s) formulate a plan for creating their offering and bringing it to market.

Once this idea is solidified, it’s time to start thinking about launching your company and getting it in front of consumers. At this point in the lifecycle, angel investors may be your best bet to raise enough capital to get your company off the ground.

Here’s everything you need to know about angel investors and how to get them onboard with your business.

What Are Angel Investors?

Angel investors are often high-net-worth individuals that have experience in your industry. Sometimes, your family or friends could be considered angel investors, but they can also be third parties who are simply interested in your offering and its success. Besides the capital they infuse into your business, angel investors are often valuable because of the advice and guidance they can offer. 

When Should I Reach Out to Angel Investors?

Angels invest early in your business, typically during the “pre-seed” or “seed” rounds. They generally make investments into companies that are beyond the ideation phase and have a minimum viable product that is ready to go to market and get feedback; many times, this is before the product has gotten any traction in the market.

Angel investments typically range between $25,000 and $1 million.

How Should I Reach Out to Them?

Angel investors are often part of angel-investor groups, such as the Angel Capital Association and Gust. They can also be found at pitch or demo days and through angel-investment platforms like AngelList and FlashFunders.

When it comes time to raise angel capital, make sure to reach out to your immediate network. You may unknowingly have a wealthy aunt that invests in early startups or a friend with disposable cash and experience in your industry. Raising capital is all about networking: It won’t happen unless you hustle. 

How Do I Pitch to Angel Investors? 

Raising capital from family and friends is easy; they’ll believe in you almost to a fault. But when it comes to raising capital from outside investors, the level of professionalism and the quality of your idea and execution have to be much further along.

A good angel investor wants to see that you’re going to use his or her money to take your business to the next level. As such, it’s important to outline exactly what you need the capital for, what you’re going to use that capital for and what the outcome will be when you execute your game plan. If you can instill confidence into an angel investor that your plan is viable and you’re capable of executing it, you’ll have a good shot at raising capital.

How Do I Manage the Relationship After They Invest? 

Not all angel investors are created equal, so you’ll have to take varying approaches to how you interact with each. As always, it’s important to treat all of your investors with respect and keep them informed with updates on your business. But too much information could be a bad thing, and it could lead to certain investors meddling.

If you happen to have a very experienced and knowledgeable investor, then take advantage of that. You may want to do weekly check-ins and discuss high-level successes and issues you’re working on resolving. A great investor can help prevent major problems before they happen if you communicate with them early and often. In cases where the situation does go sour, don’t be afraid to ask for help; a good investor is there to help through the good times as well as the bad.

What About Potential Pitfalls?

Be very careful whom you take money from. From the second you accept capital from an investor, you are forever tied to that individual (or at least until a major event happens: i.e. a sale, buyout, etc.).

If you don’t like the individual, don’t take their money. If you don’t think you can work with the person, don’t take their money. If you think the investor will try to micromanage and meddle with the business, they probably aren’t going to make a great investor for you.

Be selective, and only onboard investors you trust and are compatible with. When you accept capital from an angel investor, make sure you’re prepared to work with that person for the next five to seven years—or potentially even longer.

For more in-depth coverage of raising equity capital, including how to pitch to venture capital firms and private equity, check out our free e-book, The Complete Guide to Equity Financing.

Chapter 10.
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