Angel investors are wired to invest in a nascent business or startup with little-to-no revenue. Ideas that are just beginning to solidify are what angel investors are looking for, possibly even just a great group of entrepreneurs with passion, experience, and an idea. VCs (venture capitalists), on the other hand, won’t consider you. They have large funds and write big cheques. They are experts at analyzing and helping businesses, not “Three Gals and an Idea, Inc.”
Are you a female entrepreneur? These 6 industries are primed to be dominated by women.
But, there’s a right way to approach an angel. I call it “cocktail party pitch rules,” and it solves four of the biggest problems I find when working with entrepreneurs, even ones in whom I have already invested.
Here are the 4 tips that will help you get an angel investor on board:
1. The 7 seconds rule
You have 7 seconds. This is a fast-paced world with buzzing smart phones, Instagram updates, and right swipes. Consider the CEO of one of my portfolio companies. He’s a highly experienced entrepreneur solving a pain point that he himself suffered during his years in the advertising world.
He has successfully raised angel money. He’s a pro. But when we were together at a holiday cocktail party with a ton of angels, he blew it. One angel came up to us, barely balancing his wine glass and hors d’oeuvres plate and asked “tell me, what do you do?” “Well,” my CEO started, and he then mentally downloaded a series of paragraphs that included every detail of his business, all accurate and all important to his company, but not catchy or interesting. The angel’s eyes glazed over and he quickly headed back to the cheese table.
People want information to be parseable and give them the information they need to fully understand your business, which leads me to my next point.
2. Ditch the buzzwords
“We have developed three different customized bulk shipped calorie delivery solutions that are derived from the recent favorable price trends in petrochemical market.”
You have great passion for your startup. It’s your life’s dream and a product of hard work. I’m on your side. I am an entrepreneur too, having launched two businesses myself. It’s tough to boil down your business into simple terms. Seems so demeaning to describe your dream and life’s work into a simple sentence, but all of the buzzwords and all of the verbal layers distract and confuse the angel investor. She gets calls all the time for her money. She’ll use any reason to say no and move on. Making her tackle all the buzzwords is the easiest way for her to turn you down before you’ve even started.
Some entrepreneurial self help book somewhere a long time ago suggested describing your product as a “solution.” It was a great idea for a while. But now, just tell me what you do.
“We manufacture bulk plastic forks, knives, and spoons.”
That’s a lot better.
3. “I don’t know” is ok
“I don’t know,” is a fine response. Maybe not after the second question from a potential investor, but eventually.
As an angel starts drilling down into your business, you’re not going to know everything.
“Who are all of your competitors?” “What are your projected revenues for 2025?” “Will your encryption work with the new, unreleased encryption protocol?”
Every angel I’ve met (and VC for that matter) seems to have their own unique fetish for specific information. No matter how much prep work you do or how much experience you have, there will naturally be questions that stump you. Don’t just try and make it up. We can all tell. We’ve been around young kids long enough to know what that sounds like.
“I don’t know.” “Let us get back to you.” “We haven’t incorporated that yet into our business model.”
These answers may sound like you’re admitting defeat, but it’s actually the opposite. These answers show us that you’re honest and professional, which are two of the most important qualities we’re looking for in a founder.
4. Don’t Take it Personally
An entrepreneur got angry with me once when I passed on their deal. I had met with them to try and understand their (complicated) technology and the business. They felt that given the time we had spent together, I owed them something.
Let’s borrow from the movie, the Godfather (as everyone always does…but somehow it always works).
“It’s not personal. It’s business.”
When we reject your investment, it can reflect any number of concerns, such as:
- Your business model.
- Our opinion about your business ability.
- Concerns about our own portfolio.
- Our lack of understanding of your sector.
In fact, the angel that rejects you might have never been serious in the first place. There are, unfortunately, tourists in the angel world. They’ve seen Shark Tank and just want to play along, making you jump through hoops. They waste your time and even our time (a simple tell is if they constantly interrupt you to express their own opinions and visions about the future of the world. A serious investor uses every scarce second with you to learn more about your business). Tourist annoy us too.
Finally, here’s one of the best pieces of advice I ever got while I struggled to build my business.
“Your audience is already rich. And they got there without you. They don’t think they need your product. Even if you have a great product, they still might pass. It’s not personal. It’s business.”
Disclaimer:
Angel investing is still the Wild West of private investing. It’s an asset class that has not (yet) been institutionalized like PE and VC. Next to me at due diligence meetings with startups is mostly high net worth individuals (and some of those tourists I mentioned before), so no one really knows what to expect. Sometimes you’ll exit with nothing, in which case you’re right back where you were. But, sometimes you’ll leave the meeting with a deal that jumpstarts your business.
I like to call this NORK (no one really knows).
These 4 tips will help you immensely as you start taking your business to angel investors.
Contributed By
Anthony Gellert, Harvard College AB ’91, Harvard Business School MBA ’97 – Treasurer of HBS Alumni Angels of Greater New York
Anthony is the President and Founder of Livingston Capital Management, an investment partnership based in New York City. Prior to his founding of Livingston Capital, he covered healthcare services and industrial services at Cobalt Capital Management and before that was an analyst at Kingdon Capital Management. Anthony has participated in 13 angel investments over the past year.
