5 tips on how to woo an angel investor to fund your big idea

A few years ago, Bryanne Leeming just had a promising business idea and a prototype for a device that teaches kids how to code through recess-style play. Today, her Boston-based startup has 10 employees, and its original product, Unruly Splats, is used by schools in 45 states and six Canadian provinces.

Leeming’s company, Unruly Studios, has clearly benefited from the need for innovative ways to teach science, technology, engineering and math (STEM). But it might not have come so quickly without the help of angel investors, an increasingly important source of capital, and other support for high-growth startups.

Earlier this year, Unruly Studios secured $1.8 million in seed funding from the eCoast Angel Network and other angel groups, Amazon’s Alexa Fund, and other investors. The funding allowed the company to more than double its staff – adding education, sales and marketing specialists – and thus position itself for even faster growth.

Angel investing is not new, but it has attracted more interest recently.

Why? The hit reality TV show “Shark Tank” has no doubt shed some light on the once esoteric method, but more importantly, today’s investors have deeper pockets, thanks to economic expansion. longest in American history, which produced many money-making legions. entrepreneurs who want to stay involved in the startup scene.

Angels are typically accredited, high-net-worth investors who buy shares in fast-growing startups and are owners often involved in strategic decisions. However, in recent years, less wealthy investors have begun to participate in angel investing through equity crowdfunding platforms – such as SeedInvest, StartEngine and Republic – although although some federally imposed restrictions still apply to them.

“The world is awash with money right now,” said David Rose, third-generation angel investor and founder of the New York Angels, one of the country’s oldest and most active angel groups. startups in the early stages. Rose is also the chief executive officer of Gust, an internet platform that connects accredited investors with early-stage companies.

According to the University of New Hampshire Center for Venture Research, the number of active angel investors grew 16% in 2018, to 334,565, year over year, despite the total deployed capital (about 23 billion USD) decreased slightly. The number of projects that received angel funding last year increased by about 7%, to 66,110, from the previous year.

Wondering if you have what it takes to land an angel? Do you know where to find one or would you like an angel to join your business? Here are five tips to help you navigate the world of angel investing.

Made up of angels with varying levels of investment experience, such groups have flourished in recent years, in part because they allow members to pool capital to execute deals. larger translations and work together to assess opportunities. Rose estimates that there are about 400 groups of angels in America alone. You’ll find links to hundreds of angel groups – along with some links to platforms that connect accredited investors and startups – in the member directory of the Natural Capital Association. God.

Many angel groups invest in startups in specific geographies and/or sectors. For example, Canada’s North Ontario Angels is a nonprofit that connects regional entrepreneurs with accredited investors. Team members have invested more than 101 million dollars (133 million Canadian dollars) in early-stage companies, the majority of which will be invested in companies in the technology sector.

Some angel groups have a social disposition. For example, Pipeline Angels not only seeks to boost the number of women in angel investing but also provides capital to women and non-binary female social entrepreneurs. Since April 2011, nearly 400 members of the team have graduated from the angel investing training program. In total, its members have invested more than $6 million in about 70 companies, including Unruly Studios.

With so many angels to choose from, how can an entrepreneur identify the famous angels with a long track record?

For starters, check out an angel’s references by talking to a few entrepreneurs who have ended up making deals with that angel, said Jeffrey Sohl, director of the Research Center Adventure of the University of New Hampshire, hint. You may also want to search reputable databases, such as PitchBook and Crunchbase, for information on specific angels. Some databases are free to use, while others may be available through library platforms.

Sohl also suggests searching LexisNexis, a database of legal and public records, for information on specific angels. Sohl should also review the academic literature to become familiar with the attitudes, behaviors, and characteristics of angel investors in general.

“Appraisal is a two-way street,” he said. “As an investor does due diligence on entrepreneurs, entrepreneurs should also do due diligence on angels.”

Before pitching to an investor, do your homework, which means you not only understand the role of angels and their considerations, but also how your company can benefit from their personal experiences and relationships.

Angels sometimes sit on the boards of their portfolio companies (as voting members or observers) and often provide strategic advice to management. For example, they can help portfolio companies penetrate new sales channels and/or vertically integrate their operations by making deals with suppliers and distributors. distribute.

Angels can also help their portfolio companies attract new investors – which is exactly what Leeming experienced with Unruly Studios. Some of her company’s early angel investors put the company in contact with the eCoast Angel Network, which ultimately decided to lead Unruly Studios’ $1.8 million seed round.

“They are value-adding investors,” says Sohl. “Don’t just look at them as a source of cash. Look at what’s coming with the money – what kind of advice, what kind of experience.”

Angel investing is risky business. It is also illiquid, meaning that angels often don’t see a return on their investment until their investment companies are listed or acquired. And that’s if they’re lucky. One study found that in the US, angels lose part or all of their money in more than half of their trades because of corporate failure, according to the Angel Capital Association.

In exchange for the risks they take and keeping their money in the long run, angels seek huge profits, that’s why they tend to look for the next Google or Uber, and steer clear of small businesses with limited upside potential.

According to the Angel Capital Association, angels strive to invest in innovative companies with the potential to grow to hundreds of employees and $50 million in revenue within three to seven years of inception.

“Never in your wildest dream when you buy a stock on the New York Stock Exchange is your expectation that the company might go bust or the whole thing might disappear,” says Rose. But that’s how angels think.”

“They say, ‘This is the big deal or go home.’ They’re looking for entrepreneurs who are trying to change the world.”

When evaluating startups, angels tend to look for companies that have already started attracting customers or potential customers – in other words, venture firms that have gained some traction on the internet. market. Rose said, Angels wanted to hear more than just an idea or a business plan, as technological advances have made it relatively cheap to run a successful business.

What are some ways to demonstrate market traction? Revenue and profit are obvious metrics, but entrepreneurs can also show that there’s a strong market for their good or service by identifying test or beta customers, which is accurate. is what Leeming did when Unruly Studios first started.

In late 2017, the company kicked off a successful Kickstarter campaign, taking pre-orders for Unruly Splats, which are programmable light-up buttons. It used Kickstarter funding and some initial capital to deliver pre-orders a year later, on time.

“One thing that our early investors were very excited about was our $42,000 down payment from the crowdfunding campaign,” Leeming recalls. “It’s strong evidence that there’s demand for Unruly Splats, because strangers spent a year on them before we promised delivery, which shows they want the product and believe in the possibilities. of our team in the implementation.”

Sohl says: Once you reach an agreement with an angel, you are no longer your own boss. So it only makes sense to look for an angel who will not only bring valuable insight and connection to the table but also share your goals for your company, such as possible time to sell your business.

“Most entrepreneurs are independent people who are passionate about their business,” says Sohl. “They need to realize that once they’ve invested outside and given up equity, they’re not going to fly alone anymore.”