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February 22, 2017

5 Ways to Attract Angel Investors for Your Tech Startup

Angel investors poured $24 billion into American startups in 2015 alone. This is staggering considering only a short time ago they were far behind venture capital firms. In fact, in 2009, angel investors accounted for only about $17 billion of the capital invested into the startup ecosystem. These numbers suggest that the amount of capital angel investors are pumping into the ecosystem is on a continual uptick. Startups backed by angel investors are more likely to survive, to create more jobs, to exit the startup phase intact and win subsequent rounds of funding. Entrepreneurs are becoming more proactive about seeking angel investors because of their manifold benefits. So, it’s little wonder that angel investing is seeing such rapid growth.

Angel investors typically cannot put up as much money as venture capital firms, but offer an incredible amount of intangible benefits to startups, such as one-on-one mentoring. Angel investors typically invest in people rather than ideas, and wish to build lifelong working relationships with serious professionals. They aren’t as worried about immediate returns as venture capitalists might be, but do demand a certain level of personal dedication. For this reason, angel investors can be difficult to attract to your startup. If you’re in need of funding, however, and do not require millions of dollars in startup costs, securing funding from an angel investor may be well worth the work.

Here are five ways to attract angel investors to your startup:

1. Do your homework

Angel investors are attracted to individuals who have done the proper research. They aren’t impressed by gimmicky pitches. Smart investors want to know that you are tuned into your industry, understand the market and have the ability to craft an insightful market analysis.

Most importantly, you must have a solid financial plan already in hand. Here are a few things you should have completed (and should review thoroughly) before approaching an angel investor:

  • Income statement
  • Balance sheet
  • Sales forecast
  • Market research

2. Craft a winning business plan

An exceptional business plan will set you apart. Most plans are either bogged down by superfluous data or fail to address hard financial realities. An exceptional business plan is concise. It’s packed with research, but irrelevant data has been cut out. It’s a document that can tell a captivating story, and, at the same time, is grounded in facts and figures. What’s more, an effective business plan is one that keeps its audience in mind. Be aware of who you are talking to, and adjust your plan accordingly.

3. Network locally

Given the personal nature of angel investing, angel investors often invest in their local communities. It’s somewhat rare to encounter individuals who wish to put up their own money, and who also wish to do so internationally or even across the country. Attend local small business networking events, interact with other business owners in your community and utilize online angel investor networking resources to help you find one in your area.

4. Stay within your industry

Look to angel investors who are experts in your field. If you’re seeking seed money for a SaaS (News - Alert) product, look to previously successful tech entrepreneurs who are seeking to invest in software. This way, your pitch is more likely to land funding, and your angel investor can be a better mentor to you.

5. Exhibit a lifelong commitment to entrepreneurship

Again, angel investors are looking to invest in individuals. A spectacular idea is not enough to win over their hearts or their wallets.

You must prove that you:

  • Surround yourself with talented individuals
  • Have the proper temperament and ego to empower your team
  • Will make the right decisions for the company, not just yourself
  • Are open to criticism and can apply it constructively
  • Can handle failure and pivot accordingly
  • Are willing to part with equity and allow serious involvement of the angel investor

Funding your startup is essential. Securing the type of funding you desire is an even more arduous task. If you believe your startup would benefit from angel investment, you’re going to have to properly vet your idea with research, assemble a talented team and effectively communicate your passionate dedication to building your business. Use these five ways to attract angel investors as a guide to help you become more knowledgeable about your industry and your local angel investing community. Given the proper time, you’ll be able to articulate your dream to an angel investor, and quite possibly earn their trust – and capital.

Edited by Alicia Young

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