- Do your research on the individual
- Make sure you’re prepared
- Learn the different types of no’s
- Get to grips with the investment game
- Always be networking
Let’s start at the start. What is an angel investor? In short, they are an investor that puts their capital into higher risk investments.
They can be two types of businesses that an angel investor would invest in. Firstly, a startup or simply an idea could grab the attention of an angel investor. A company could only have a domain name or the idea of a product that they would like to bring to market. At this point, an angel investor would make an investment knowing full well that they may never see a return on what they invested. Secondly, a business could be struggling financially, such as struggling with cash flow. Sometimes a business needs an injection of capital to get up to the market standard. If you were a business owner, an angel investor is exactly what you would need to save the business and get you back at the forefront of the competition.
It’s worth noting that the key difference between an angel investor and a venture capitalist is that often, angel investors use their own capital whereas venture capitalists use a pool fund.
An obvious drawback of using an angel investor is that if they’re risking a lot of money, they’re going to want a higher reward. It goes back to the old cliche, high risk means high reward. Angel investors can desire anywhere from 10-50% of your business in return for their cash injection. This is context dependent but you should think carefully about if you want to give away shares and how much you’re willing to let go.
Conversely, a benefit of an angel investor is that because you’re giving them share capital in your business, you don’t have to worry about paying them their money back. They’re taking on all the risk for that money. It is still your job and likely in your best interest to put that money to good use. But if things do fail, it’s easier to not have the debt fall to you.
So, how do you go about pitching to an angel investor? Here are the some tips:
1. Do your research on the individual
There are 100s and 1000s of investors out there. There’s a lot more money in the world than you think! One really useful piece of advice is to make sure that you’re pitching to an investor that is really relevant to your industry and niche. One example, if you’re planning to pitch a holiday or leisure related business, you’d hope to have Debra Meaden in front of you. She made millions in 2006 after selling her Weststar Holidays business for £33 million. Industry knowledge and know-how is hard to come by without experience. If your investor, who is likely to be hands-on if it’s their money you’re playing with, has extensive knowledge in the market you’re wanting to enter, they’ll feel more comfortable investing in an industry they’re familiar with. Therefore, they will be more likely to invest.
2. Make sure you’re prepared
To some, this may be obvious. But if you fail to prepare, prepare to fail! Circling back to Dragons Den, it is clear and obvious when someone enters a pitch and hasn’t done their homework. Stutters are common, the numbers they speak don’t seem to add up and they generally don’t seem to speak with confidence and conviction.
3. Learn the different types of No’s
In the investment game there are 3 types of no’s. The first is no, not yet. This means that there are external factors that are influencing the investor which means they don’t want to pull the trigger, yet. This can be a hard one to take but there is good news. Whatever the influence that’s causing the no is, it hasn’t cut you off for good. It could be that the investor doesn’t think you’re mature enough to launch or that the market might not be right. The second no is no, I don’t get it. This means you simply haven’t explained your offering in enough detail and that they understand what you’re trying to create. You might be lacking facts and figures or that your pitch hasn’t explained all the USPs that you and the team talk about daily. Whatever it is, you need to identify what the investor does not understand and rectify the knowledge gap. The last no is no, it’s not for me. Here, you’re probably barking up the wrong tree and it’s falling on deaf ears. It’s a tough one to take but your mentality should be “onto the next one”.
4. Get to grips with the investment game
A key nugget of information is that the whole investment game is built on FOMO (the Fear Of Missing Out) and perception. You can have a fantastic product or service that you are pitching but you have to make sure that the investor perceives it in the right way. As an individual, you have to exude confidence in your idea. If you don’t have confidence in it, how will an investor? On top of this, you have to also create the perception that this is the next big thing and that missing this chance to invest is their problem, not yours. Creating this perception can be done with a few tips and tricks such as bringing in previously successful people onto your team, suggesting that there are already other investors onboard and reversing the demand, why should we choose you as an investor?
5. Always be networking
Network is key in the game of investment. A warm introduction from a trusted source is worth more than a 1000 cold outreaches. The best way to get your pitch in front of the right investor is to be put there by someone they trust. Building up a network is no easy feat. It takes a lot of time and energy. You’ll have to be nice to people who are not so nice themselves. Making sure that you value everyone equally is another important step to networking. Its easy to be sweet and open to those who are of clear value. Its not so easy to be nice to the not so obvious people. However, it could just be those people who have the connection you’re looking for. They just might not be so open about it.
This blog was written for XXX, on behalf of The Velocity Group, seeking to make investments that offer investors capital appreciation opportunities.