Angel investors are frequently bombarded with opportunities to invest in small businesses. Angels, as angel investors are commonly referred to, are private investors who are typically high net worth individuals. They're popular because, unlike venture capitalists, they don't typically expect exponential growth in five years and they often don't require a major ownership stake.
However, because they often require less in repayment, landing angel funding is extremely competitive. For this reason, to win over angel investors, you need a multi-pronged approach.
Here's what you need to do to win over angel investors.
1. Leverage Past Successes
"Lead with what you've done before that would demonstrate you're likely to be successful again with your latest venture," says venture capitalist and angel investor Bill Collatos.
That might mean detailing your expertise in the industry and your years of experience in the field in order to confirm you're an authority who is qualified to judge what the market needs.
2. Demonstrate Customer Demand
Angels want to understand what the consumers' appetite is for what you're selling, Collatos says. So share company data as evidence that there is strong demand, as well as third-party reports and studies that back up your assertions.
"The number one thing that grabs my attention as an angel is market traction—a demonstration that your startup is appealing enough that customers are paying for it," says Jeff Saling, angel investor and executive director of StartUpNV. "Market traction means you have a product, you've figured out how to sell it, you've got some operational process to deliver it…that your startup is beyond the idea phase and executing with some initial positive results."
3. Showcase Potential Market Size
Mark Prosser, CEO and co-founder of Choosing Therapy, raised a pre-seed round of financing a few months ago and learned an important lesson.
"One of the biggest mistakes was taking a bottom-up approach in my first meeting with potential investors," says Prosser. "Instead of explaining why we could be generating $100+ million in revenue within five years, I needed to explain that the potential market for our services was $10+ billion," he says.
4. Know Your Numbers
Finn Cardiff, CEO and founder of Beachgoer, says that communicating how your offering solves a problem is key. But perhaps even more important is knowing your numbers "so you can support your claim," he says.
Similarly, Briam Lim, founder and CEO of iHeartRaves, advises, "Know all key metrics around your business and be ready to answer all the basic questions."
5. Don't Ignore Competition
"When the pitch deck tries to say that there are no competitors to the product, it's a huge turn off to me," says Marc Ian Snyderman, Esq., founder and CEO of the Snyderman Law Group, PC, an angel investor and entrepreneur who has previously secured angel investments.
He advises, "Show me how you are doing something different and better than others, but don't try to tell me that no one else is doing anything in the space you're in." You'll lose credibility.
6. Be Genuine and Realistic
Angel investors want to see that you truly believe in your concept and are fully committed to bringing it to fruition. However, "don't be afraid to say that you don't have all the answers yet," Snyderman says.
7. Be Transparent
For entrepreneurs who hope or expect to go on to start other companies, building a relationship with investors involves establishing trust, which is easier to earn with regular open and honest communication.
"As an angel investor myself, nothing burns me more than poor communication from the company," says Neil Kane, serial entrepreneur with Illinois Partners and author of The Innovator's Secret Formula. "Everyone understands that a company can fail and everyone can lose their money, but if that happens and the investors didn't see it coming, that's the worst possible outcome."
8. Ask for Advice
Andrew Glantz, founder and CEO of GiftAMeal, raised funding from nine different angel investors during the company's last round. His approach?
"In initial conversations, I asked for advice, not money," says Glantz. That discussion led several investors to "buy into the vision," with many of them asking about investing even before Glantz had a chance to bring it up.
"Success with angel investors depends on the quality of the individuals you're talking to and the success they've had, what they know about the sector you operate in, and the demand for your product or service," says Collatos.
To find potential angel investors, Collatos recommends looking into angel investor networks that have sprung up in partnership or alliance with university business schools. Incubator and accelerator programs are another potential path to connecting with investors.