How to Pitch and Raise Angel Investment

Web3

Written by

Pratibha Tiwari

– Copywriter & Content Marketing Consultant for Ed-tech, Web3 & DTC brands

Angel investors are private investors willing to invest in an early-stage business and offer their support at a nascent stage where other investors are unwilling to invest. These initial investments by angel investors are called angel investments.

When businesses reach a stage where they see their growth plateau due to a lack of capital and resources, they look for external investments in return for convertible debt or equity of the company. These investments bring in the support of a veteran investor with an established network in the industry that solicits growth and gives them the extra capital to invest in the infrastructure and marketing costs to take their brands to the next level.

But convincing an angel investor to invest in your venture is a challenging task. You have to convince the investor that your venture has a positive future and that you are a competent entrepreneur, who has the guts to face challenges head-on and emerge victorious in the end. You have to convince them of your passion, ambition, and will to succeed no matter what. And you have to do all of this in a high-stress environment within the span of a meeting that lasts about 30 to 90 minutes.

There are multiple reasons why it’s difficult to raise money as an early-stage startup. Some of the significant ones are:

You don’t have significant earnings to impress the investors
You don’t have concrete stats to back your growth projections
It’s extremely risky to invest in a startup because more than 90% of startups fail. (Source: A 2019 report by Startup Genome)

So how do you convince an angel investor to invest in an idea that has barely gripped the ground and is still learning to walk?

Let’s discuss that in further detail.

Who are Angel Investors and What do They Want?

Angel Investors are usually individuals who have amassed a fairly high amount of wealth and comply with accredited investor standards. A person is said to be an accredited investor when they have a net worth of $1,000,000 not including their primary home, or an annual income of $2,00,000 if they file individual taxes, and an annual income of $3,00,000 if they file combined taxes with their spouse.

They are usually individuals with proven expertise in one or more sectors and having at least 5 to 6 years of exposure to running a business, as senior management or as an owner. Angel investors usually invest in groups to dilute the risk and make the investment more plausible.

These individuals are constantly on the lookout for high-return investment opportunities that make other private equity investment returns look like peanuts. Angel investors usually expect at least a 1,000% return on their initial investment, in case an investment follows the right track.

The upside linked to angel investments is mind-numbing. Just recently the famous shark Kevin O’Leary aka Mr. Wonderful revealed in an interview with Jake Paul on the “impulsive” podcast about his worst mistake as an investor.

While answering a question he said:

“There’s this company called Ring that sold for billions to Amazon. He wanted $600k for 2% of his company but we couldn’t make a deal. I could’ve made $800 million on that deal.”

So they are not looking for puny 20-30% returns on their capital. They want high returns to justify the higher risk they are taking with these investments.

Good investments are a rarity among angel investors. A report by Robert Wiltbank and Warren Boeker on angel investing reveals that 5 out of 10 angel investors lose some or all amount of their money on investments. That’s one of the reasons why they are so hard to convince. Because they pick the best ventures with visible potential and a good chance of being the winners. And then they get involved with all their resources and connections to make things happen.

Where to Find Angel Investors?

For some businesses, angel investors are their close relatives, family members, or friends that volunteer to help. But these investments carry some severe social risks. You’re risking a relationship on the fact that your business will succeed. And that’s not a healthy investment both on the social and financial front. Therefore, businesses should prefer investors outside of their social circle. But finding an angel investor outside of your social circle is challenging and convincing them to invest in your idea is even more challenging.

Here are a few avenues to look for angel investors and connect with them-

Y Combinator – A startup incubator
Angel list
Angel Investment network
LinkedIn
Local business groups
Crowdfunding sites – Kickstarter and Indiegogo
Lawyers, Accountants, and Entrepreneurs
Investment Bankers and Venture Capitalists

Networking on LinkedIn and finding common connections with angel investors can help you gain the trust of an angel investor if that common connection introduces you. It is one of the most effective ways to find a good angel investor by leveraging your social circle.

Assuming that you get in touch with a group of investors that are willing to let you pitch your idea. It’s now time to prepare for the pitch.

How to Make a Good Pitch?

Most angel investors invest in the entrepreneur. They are more interested in your character, zeal, and charisma as a person than the current sales of the business. Of course, sales are an important factor, but not as important as the entrepreneurs themselves. Because no matter how good the business model is, and how innovative the product may be. It all depends on execution. And if the person leading the venture is capable. The business has a high probability of success.

The moment you step into a room with angel investors, they start evaluating you as an entrepreneur, even before they’ve had a chance to listen to your pitch. Your confidence, the way you tackle the awkwardness when you step into a room with hyper-successful individuals like them, your passion for the venture, everything is under the lens. And the worst thing you could possibly do is enter that room unprepared.

Trust me, you’re gonna get mauled and tossed around like a softball.

So here’s how you start preparing for your pitch:

Prepare an executive summary that has all the financial, legal, and managerial details they could possibly ask for.
A good PowerPoint presentation for the product demo. Make sure it’s under 20 slides. You can refer to other startups who’ve had a successful pitch for inspiration.
Research your investors and research them as deeply as possible. Get acquainted with their preferences, past investments, their active investments, and area of expertise.
Make sure your product demo is short and entertaining, highlighting the most impressive features of your product that separates it from the competition.
Visit their LinkedIn profiles and scan them thoroughly for any common connections. Ask them for insights about the investor.
Rehearse your pitch in front of a genuine audience and ask them for their unfiltered feedback. Note down what’s wrong, fix it, and rehearse again. Repeat until there’s none left.

So the initial phase of your preparations is now complete and you have a wireframe for your pitch. It’s time to move on to the next phase, the questions.

During a pitch, you spend roughly 20% of your time on the demo, and 20% on the negotiations if you’re offered a deal. The rest 60% is spent on answering questions.

Because the investors have a lot of questions and they want really good answers from you. You can’t get away with mediocrity in a startup pitch.

Although there’s no telling what questions you might be asked, as it varies from business to business. There are a few questions that are fundamental and are tossed around at almost all the pitches.

How much capital are you raising and what would you do with that money?
What are the detailed financial projections for the next two years?
What are the underlying assumptions for these projections?
What are your net and gross margins?
What are your sales figures in the last 6 months/
What is your growth rate YoY?
Who are your competitors and why are you better than them?
What is your CAC(Customer Acquisition Cost) and CLV(Customer Lifetime Value)?
What is your burn rate?
Who are the key team members?
How do you plan to scale the team in the next 12 months?
What motivates you as an entrepreneur to show up every day and give your best?

These are some of the key questions that might be thrown at you during the pitch, and not being able to answer any one of the questions given below can be fatal.

Now considering that the pitch goes well and some of the angel investors are interested in investing in your brand. It’s now time for you to shoot some questions at them to figure out which angel is the right fit for your brand.

What do you bring to the table as an angel investor?
Tell me about some previous projects that you’ve worked on that turned out to be successful.
What amount of follow-up investment will we need to grow as a business?
How are your relations with venture capitalists?

And at the end of all this, we hope that you land a great deal with an awesome investor and embark on a journey to success!

TL;DR

When businesses reach a stage where they see their growth plateau due to a lack of capital and resources, they look for angel investments in return for convertible debt or equity to scale their business and take it to the next level.

Angel inventors are individuals with a fairly high net worth, looking for lucrative investment opportunities that have extremely high ROI.
Angel investors need to have at least a $1,000,000 net worth, or an annual income of $2,00,000 in the case of individual tax filings, and an annual income of $3,00,000 in the case of combined tax filings with their spouse.
It is really difficult to raise an angel investment because 90% of startups fail.
You are evaluated as an entrepreneur during the pitch. You need to be confident, passionate, and tough-skinned to stand out.
Never go unprepared for a startup pitch. You’ll get mauled by the investors.
Here are a few questions that can help you prepare better for a pitch.
How much capital are you raising and what would you do with that money?
What are the detailed financial projections for the next two years?
What are the underlying assumptions for these projections?
Who are your competitors and why are you better than them?
How do you plan to scale the team in the next 12 months?