Angel Investors want to fall in love
Raising funding from Angel Investors can feel like a catch-22. It’s easy to figure out who the active Angel Investors are but it’s hard to find the right time to pitch them. Most of them don’t seem like they want to to be “pitched” at all! How do you convince them to invest without pitching them? You need to get them to fall in love first.
Not all investors are the same. Some invest in tech startups and others only do restaurants and office buildings. Some like to be the first investor to commit and others prefer to be the last. Some will invest in a great person with a big idea and others need to see customer traction and revenue first. It doesn’t make any sense to pitch a later stage, “growth” investor with your seed stage idea just like it doesn’t make much sense to pitch a new tech startup to an investor who only does oil & gas.
Angel Investors and Venture Capitalists
Another important distinction is whether or not the investor is a professional investor such as a Venture Capitalist (VC) or if they are doing it “for fun” as an Angel Investor. I don’t want to trivialize it because Angel Investors are an important source of funding but I do think that it’s important for entrepreneurs to understand their base motivation.
VC’s are investing other people’s money — usually big endowments and institutions. It’s their job to constantly look for new deals to invest in and if they miss out on something big they aren’t doing a good job. They usually have a formal process for how they want to learn about new deals and get pitched. If a VC went a whole year without making an investment it would be a sign that something was wrong and people would be concerned.
Angel Investors are investing their own money — they have some other job that pays the bills and let’s them be angel investors. They rationalize it with portfolio theory but almost everyone I know does it because they really enjoy it. It’s fun to meet new entrepreneurs and see what they are working on! However, if an angel investor didn’t find anything to invest in for a full year it would be no big deal.
Wise Angel Investors only invest money they are willing to lose completely. For many, it’s not part of a formal allocation or portfolio where there is some amount of money set aside that must be invested by a certain time. If they have liquidity (money that’s not tied up in some other investment) then one of the many things they can do with it is invest in a startup. They could also buy a new car, or build a pool, or take a really nice vacation instead. They don’t have to make any investments at all.
Professional investors are always looking for new investments as long as they have an active fund. Angel Investors might be open to new investments in December when they are getting a big annual bonus and less open in April when they are thinking about paying their taxes. An Angel Investor who passed on your deal six months ago might feel differently today after selling a big real estate property.
Angel Networks are more like VC’s than Angel Investors. They have a formal application process and money allocated to invest. They tend to invest and negotiate as a group which makes them more objective and less emotional.
Building Your Target List
Start off by creating a spreadsheet of your target investors that you can update and add to over time. Leverage your local network and social network to figure out who the most active local angel investors are. Look for potential angel investors in your university alumni network or other associations you are part of. If you want to expand your network, consider applying for an accelerator program such as Capital Factory, Techstars or Y Combinator. You can also search online databases of investors such as AngelList, Crunchbase, Pitchbook, and Union for other investors who focus on your industry.
Within your target list, flag who is a “first mover” angel investor who isn’t afraid to be the first one to say yes and can act as social proof to other investors. That will narrow it down pretty quickly. While there are lots of angel investors, there aren’t that many who are willing to be the first one.
Falling in Love
How do you make an Angel Investor fall in love with you and your startup? It all starts with finding the right people to begin with. Angel Investors aren’t just looking for any good investment — there are usually industries and technologies that they are more interested in than others.
- Maybe they have experience and contacts in a particular industry such as travel?
- Maybe they believe a certain technology such as blockchain is going to be very disruptive?
- Maybe they know a lot about app store optimization and that will be a key part of your marketing strategy?
“Office Hours” with Mentors at Accelerators or with Angel Networks can be helpful for opening up your network of potential investors, getting feedback, and for identifying who is worth spending more time with.
They key to engaging a mentor or angel investor is to make them feel like this startup is a particularly good fit for them — for their expertise, their background, or their interests. Not every angel investor is going to be highly engaged — but most of them think of themselves that way.
A great way to start is to connect on a personal level first. Do you have any hobbies or background in common? Follow prospective investors on Twitter and other social media channels and then respond to some of the things they post and questions they ask (without stalking them). Try for casual interactions. Don’t pitch them or talk about your business unless they ask you to — just get to know them.
When you are ready to engage, ask for help. Do your homework. Talk to other founders who that Angel has invested in. Send a thoughtful, spell-checked email that gives a short background and then explains why you think he or she could help. Try to get a one-on-one meeting over coffee or lunch.
Don’t try to close them for an investment on the first meeting unless they are showing strong buying signals. Listen to what they have to say, identify one or two helpful suggestions they have, and then ask if you can follow up with them in 2 weeks after you’ve had a chance to try their suggestions and are ready to report on the results.
Los Angeles VC Mark Suster famously said, “Invest in lines, not dots.” When you meet someone for the first time, you know where they are now but you don’t really know where they are going or how fast. It usually takes a few meetings to really get to know someone and to establish credibility. As an entrepreneur, you can help lay out the dots for the investor that show them where you are heading.
If you do get a second meeting with a potential angel investor, tell them in advance what you’re going to accomplish between this meeting and then. Make sure you hit those goals and send them an update halfway through so they know you’re on top of it. At your meeting, remind them what you said you were going to do and then review what you actually did and what you learned.
Mentor Office Hours at Capital Factory
Every member at Capital Factory has access to a calendar full of Mentors available to meet for Office Hours every day. Some of them are Angel Investors but most of them know Angel Investors and have experience fundraising for startups.
Accelerator startups at Capital Factory get access to a special calendar where about half of the Mentors are also Angel Investors who frequently invest in startups who they meet during Office Hours. However, most of the Mentors and Angel Investors don’t volunteer for Office Hours because they are looking for more startup to invest in — they’ve got people they know sending them deals and others reaching out cold on a daily basis. They do Office Hours because they enjoy engaging with entrepreneurs and trying to help out. The entrepreneurs who they really connect with are the ones who they invest in.
Mentors who do Office Hours don’t want you to sit down and pitch them for an investment. You can ask them for advice about fundraising, but only if that’s a topic that they want to help with. Ideally you want to find something else to engage with them about first.
If you can’t find something specific, you might just say that you’re new to the community and want to introduce yourself and meet as many of the Mentors as possible. It’s worth meeting a lot of different people as part of building your network. Ask if they know anyone else that you should meet.
Use Office Hours as a way to make introductions and identify who you should spend more time with. Who do you hit it off with?
Don’t ask for an investment at Office Hours unless the Mentor brings it up first. If you feel some good chemistry, ask them for a follow up meeting. Can you schedule another office hours session with them? Meet them at their office? Grab lunch? If they aren’t willing to get lunch with you, they definitely aren’t ready to invest yet.
This Still Sounds Hard
That’s because it is. Convincing someone to give you tens of thousands or hundreds of thousands of dollars of their own money is a big deal. It’s an even bigger deal if they are just meeting you for the first time. Just having a good idea isn’t good enough — you need to be exceptional to get funded. Hopefully this post makes it a little bit easier!
