Even in a slow economy, angel investors individuals who invest in high-risk, high-reward businesses are still on the look-out for promising, solidly-presented funding opportunities. They are, however, taking a cautionary approach in today's economy.
While national studies indicate angel investing is actually up in terms of dollar figures, the number of companies being funded has decreased slightly. The Center for Venture Research says investments through the second quarter of 2008 totaled $12.4 billion, up 4.2 percent from the same period in 2007; however only 23,000 ventures received those funds, a 3.8 percent drop. This trend would indicate that while angel money is still flowing strong, it's going only to the very best prospects.
Think you have what it takes to impress an angel? You can improve your chances by being patient, prepared, realistic and flexible, and by having experienced executives on your management team.
Have patience: The process is going to take longer than you might expect, or hope for. Angel groups receive many applications from entrepreneurs seeking funding, and the angels subject each application to a vetting process that may include steps such as pre-screening, coaching, presentations, due diligence and, contracts. Each of these steps may take a significant amount of time, and you can expect the entire process to take months, not days or weeks.
Do your research: Most angel groups have guidelines for the types of companies in which they invest, and researching those guidelines in advance will save you a good deal of time and energy. Most angels, for example, prefer to invest in companies located in or near the city in which they are located. Some angel groups invest only in specialized fields or industries. A bit of research will help you make the best use of your time and effort.
Understand the process: In addition to understanding what angels are looking for, you need to understand how their application process works. Most angel groups now ask entrepreneurs to apply using an online software system called "Angelsoft." Through a series of online questions, the entrepreneur builds a brief executive summary and uploads various attachments, such as financials, business plans, etc. As with so many things in life, you only get one chance to make a good impression, so make sure your application is succinct, complete and consistent, and is free of glaring typographical and grammatical errors.
Be realistic: Entrepreneurs need to be realistic in terms of next steps, valuation, use of funds, etc. For example: If you're a small start-up company, can you really manage to introduce your product to the entire
Western United States all at once, or is it more realistic to roll it out in a single city, and then expand as your staff and finances allow? Or, if you've invested just $10,000 of your own money in your company to date, is it realistic to place a "pre-money valuation" of $10 million on your company? Don't forget, angels are often entrepreneurs themselves, and they'll be more impressed with your honest assessment of your capabilities than in hearing unrealistic pitches.
Be flexible: While you may want a $5 million investment, angel investors are more likely to initially give you a much smaller amount, then consider future investments as you (successfully) reach agreed-upon benchmarks. Again, understanding the process and the individual group you are approaching will help improve your chances of developing a mutually-beneficial relationship.
Be open to input: Angel investors are often willing to share their own expertise with the entrepreneurs they fund, a trend that's likely to increase, as angels want to be more hands-on in determining how their investment is used. Funding-seekers should be prepared for a "buyer's market," with angels requesting more control than in the past, and requiring that fund seekers ante up some of their own money as well.
Be willing to showcase experience: While many of the world's most successful new entrepreneurs are relatively young up-and-comers with great potential, there's one thing they often lack: real-world experience.
If you fall into this category, consider bringing on a seasoned business professional or mature fellow entrepreneur in an advisory role. This demonstrates to potential investors that you have someone on your team who has lived and worked through past recessionary times and can provide insight and guidance.
Dave Archer is chief executive officer of Nevada's Center for Entrepreneurship and Technology and a founding member of Reno Angels. Contact him through www.NCET.org.
The information presented in this article is for informational purposes only and should not take the place of professional financial consultation.
