What exactly is an angel?
An angel investor (also known as a business angel, informal investor, angel funder, private investor, or seed investor) is an affluent individual or company that provides capital for a business start-up, usually in exchange for an ownership equity agreement.
Originally, the term ‘angel’ came from Broadway theatre, where it was used to describe wealthy individuals who provided money for theatrical productions that would otherwise have had to shut down. Angels began providing their services and resources in the late 1980s, forming groups to pool information and funds – called angel networks.
Who becomes an angel?
They may be a professional, such as a doctor or a lawyer, an executive individual, or a company, with a pot of money to invest, but the best angels come from a proven entrepreneurial background – they’ve got the T-shirt! Some merely want to keep abreast of current developments in a particular business arena, others have a desire to mentor the next generation of entrepreneurs. Most want to do this on a part-time basis, while for some it’s a business in itself. Not just wealthy financially, angel investors also have a wealth of industry knowledge and a thorough understanding of what it really takes to get a start-up off the ground. Providing valuable management advice, funding and contacts to help deliver and promote the business, angels can literally enable a mere idea to really take off.
What to look for in an angel
- Passion, commitment, and integrity
- Knowledge of the appropriate market or industry
- Savvy business sense – the ability to make things happen
- The ability to raise additional rounds of financing if required
What do angel investors want from you?
- An informed, brief and articulated elevator pitch for your BIG IDEA – assume anything beyond the first few sentences will not be read!
- A clearly thought out business model or plan, with an end goal – keep it realistic. Anything that cannot be backed up by statistical evidence is likely to be thrown out of the water
- You may be asked to deliver a prototype, working model or visual representation of your BIG IDEA
- A clear definition of who your projected audience is, with evidence of how you came to this
Common pitch mistakes:
- You don’t explain the problem your BIG IDEA will solve
- You fail to convince them that anyone would want to buy it
- Your business plan is not water tight – any gaps will be spotted by these savvy investors
- You take too much time explaining what it is
- Too much ‘nitty-gritty’ up front – at the pitch stage you need to be brutal with the facts, the details can come later
- Your financial forecasts are unrealistic
- You want too much control – be prepared to embrace their comments and recommendations
- You stick on the ownership stakes you’re willing to offer the investor – you must have an idea of what you’d be happy to agree on, but be flexible with it
Angels to avoid…
- The non-genuine angel – appears interested but isn’t ‘passionate’ about helping you
- The prescriptive angel – their ‘one solution fits all’ approach is not for you
- The non-cooperative angel – you will be working with your angel for some time, you need to be able to communicate at the very least
How to choose?
You should be looking at some of the many angel networks that are out there. These match start-up businesses and entrepreneurs with experienced angel investors, as well as providing proof that they can deliver what you need from them. You’ll be able to see testimonials and often case studies, which will enable you to make an informed choice. So if you’re looking for a cash injection and business mentoring for your fledgling business – there’s an angel out there who is also looking for you.