How to Find Angel Investors for Your Startup
Generally we discuss what it takes to raise venture capital on the Founders Forward blog. However, there are a number of other types of investors and capital. All of which serve different purposes and can help different businesses in different ways. Angel investors are an integral part of the “startup ecosystem” and can be a valuable source of capital to take your business to the next level. So how do you find an angel investor for your startup?
Angel Investors vs. Venture Capitalists
Both angel investors and venture capitalists offer a form of equity financing but there are a few key differences that will help you determine if you should approach angel investors. The main difference is where their capital comes from.
An angel investor is generally a wealthy individual who is looking to invest spare cash in an alternative investment. On the flip side, a venture capital firm is backed by limited partners who are expecting substantial returns in a certain period of time. This means that an angel investor may have alternative motives (personal interest in the problem, product, founders, etc.) whereas a venture capital firm is focusing on maximizing their returns.
With the different expectations in returns also comes a difference in check size and resources. An angel investor will typically write a check for anywhere from $1,000 to $100,000 (maybe more in some cases). As for venture capitalists, they will likely write a check from $100,000 to $5M+. If you’re not growing at hypergrowth speeds or do not need a huge check to grow your business, angel investors are likely a great option for your business.
However, smaller checks are not necessarily a bad thing. As Kera DeMars of Hustle Fund puts it, “it’s often easier to convince a bunch of people to write small checks rather than a few people to write huge checks.”
How to Find Angel Investors
As Elizabeth Yin writes, “There are lots of rich people worldwide — they don’t even have to be super rich. There are lots of angels who can write you a $1k-$10k check. Angels may not know they are angels. It’s your job to plant the seed in their heads that you are open to an investment from them!” When searching for angel investors it is generally best to start with the people already in your network.
One of the interesting aspects of raising angel capital is that everyone around you has the chance to be an investor. We generally see companies start with their friends & family, past co-workers, current or past investors, etc. Just like raising venture capital, raising angel capital is a numbers play and you’ll need to meet with A LOT of potential investors. If someone in your network passes, quickly move on to the next opportunity instead of wasting time continuing to pitch someone who passed.
Don’t be afraid to ask someone in your network for an introduction. Past co-workers or investors likely have their own professional network and can open doors to new potential investors. Part of raising angel capital is stepping out of your comfort zone, and as Elizabeth Yin puts it, “embracing the awkward.”
How to Pitch Angel Investors
If you can find an angel investor that fits in with your company ethos they can be incredibly valuable for you as an advisor and source of capital. As we mentioned earlier, often times angel investors have an alternative motive outside of profit. A lot of the time they may be investing because of the founders, a personal interest in the problem, or an interest in the market/business model. With that being said, it is important to tailor your pitch to what motivates your angel investors.
A pitch to a venture capitalist often times will focus on the economics and ability to create returns but a pitch to an angel investor may differ quite a bit. You’ll want to be sure to iterate on your pitch for each angel investor. After you first meeting if you find they have an affinity for your founding team, you may want to build your pitch around the team. If you find they have a personal interest in the problem you are solving, build your pitch around your solution. Note: is vital to let angel investors know the risks associated with backing a “startup.” This is especially true if it is their first time investing in a private company.
However, the pitch and communication should not stop after a check is cashed. Angel investors are ultimately risking their own money for your business and it is your duty to keep them involved throughout the process. It does not have to be an in-depth dive into your business start by sending them status updates during and after your fundraise. We suggest including things like wins/losses, high level metrics, priorities, etc. Remember if your investor has a certain motivation behind their investment feed into that when updating them. If they have experience in the market or field you may want to make specific asks where they are qualified.
By opening lines of communication with your angel investors you will better your chances of raising follow on funding, receiving relevant help, and building a strong relationship.