If you’ve seen TV’s Dragons’ Den, you’re already familiar with the angel investor process: you approach individual investors with your business plan and seek to convince them that your idea is worth investing in.
In reality, that process takes a lot longer than it does on TV, but the principle is the same. You need to convince that investor that your business plan is sound and that they’re likely to receive a return. Here are some key things to bear in mind.
Understand your product and marketplace
An angel investor will want to see that you understand the marketplace you operate in and how your product fits into that landscape. Furthermore, your product will need to offer something the competition can’t and which cannot be easily replicated. Make sure you know your market in intricate detail and that you understand your competitors and how you’re better than them.
Know your business plan inside out
Your business plan is there to be scrutinised, so it needs to be realistic with all figures justified with reasonable assumptions. Few things will dissuade an angel investor faster than a business owner who doesn’t know the details of their plan intimately. Take time to anticipate the questions they might ask. If at all possible, get a second opinion and ask someone else to grill you thoroughly before speaking to any investors. It’ll be great practice and might point out any gaps that need filling.
Set your own limits
If you’re about to dilute the ownership of your business with investment from another party, you will need to have a clear idea of how much you’re willing to give away and what you ‘re looking for in return. Remember that the investor will seek the best deal possible for themselves so go in high and be prepared to be negotiated down. Be prepared to walk away if the deals offered just aren’t right for you.
Target the right investor
An angel investor will typically provide more than simple funding — often they’ll get involved in the running of the business, too. Make sure you do your homework beforehand and try to find someone who fits with your business specifically. There may be someone established within your sector that can put you in touch with new contacts, or perhaps someone who’s been in your position before and can assist with the challenges you’re likely to face. Going into the room able to demonstrate that you’ve taken the time to learn about the investor and their past endeavours could give you a real edge.
Show that you’re invested
A common mistake of many aspiring entrepreneurs is to approach investors and ask for 100% percent of the funding for growth without putting in any equity themselves. Savings, personal income or retained profits reinvested all prove that you’re prepared to stake your own livelihood on the success of your business. If you aren’t willing to run the risk then why should an investor?
You’re under scrutiny, too
As with all business deals, an angel investor won’t partner up with someone they don’t trust or that they feel they won’t get on with, especially given that they might be working closely with you in the future. Presentation and personability are as important here as they are in all areas of business. You need to sell investors on yourself as well as your company.
If you’re seeking angel investment, remember that there are lots of potential sources out there. One turning you down doesn’t mean that another will do the same, so keep trying and be sure to learn lessons from failed attempts.