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What is an angel Investor?

Angel investors are wealthy individuals who provide capital to startups. They usually ask for a share of the company in exchange. These investors offer funding between $25,000 to $500,000 and help startups who don’t qualify conventional startup loans.

Angel investors focus on the market potential of the startup and its founders, as opposed to venture capitalists who are focused on rapid growth in revenue. They don’t look for quick money, but instead seek long-term success. Angel investors often provide more than just money. They also act as a valuable partner for long-term success.

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How does angel investing work?

Angel investors are looking for a good return within five to seven year. Angel investors, unlike venture capital funds offer advice along with their investment. Take a look at how they work.

Spotting startup

Angels can find startups by attending local events, networking and referring them. The word-of-mouth, industry conventions, and chambers of commerce meetings all play a major role.

Homework

Angel investors will dig deeper if a startup sparks their interest. Angel investors talk to the founders, examine business plans and assess the market. Due diligence is important to secure angel investment that has a higher chance of success.

Setting up the term

Next, a term sheet gets drafted. The term sheet outlines the amount of investment, equity shares and investor rights. These terms must be agreed upon by both parties to allow the investment to proceed.

Closing the deal

Both parties sign the legal contract once they agree. Angel investment becomes official when the startup receives the money. The real work begins now, which is to grow the business and potentially attract venture capital firms.

Angel investors vs. venture capitalists

Venture capitalists pool money from many investors to make bets on existing businesses. They are looking for businesses that are on the verge of a big revenue surge. A venture capitalist may invest in a company that produces solar panels, but is looking for capital to increase production.

Angel investors have a very different approach. They put their own money at risk to help startups that are just getting started. An angel investor might, for example, fund a person who has created a prototype of a water purification system that hasn’t yet been brought to market.

The pros and cons for angel investors

It’s important to weigh both the pros and cons of angel investors when you are considering them as a source of funding. What you should know is:

Angel investor advantages

Angel investors are more likely to take on riskier ventures. They are more likely to support your startup if you take a risk.
Angel capital is not a loan. You owe no money if your startup fails.
They offer sage advice. They have years of business experience and can help you achieve long-term success.

Angel investor disadvantages

Angels have high expectations. Angels are usually looking for quick, substantial returns.
Equity Demand: You will give up equity as a form of payment. You’ll lose future ownership and profits.
Angel investors are generally interested in having a voice in the decision-making process. You should therefore be ready to give up some operational control.

Find an angel investor

Finding angel investors is the next step after you decide to use them as a source of funding for your startup. You can use the following channels:

Traditional angel networks

Angel Capital Association, Angel Forum: These organizations are where accredited investors come together. These organizations provide community events and directories to help startups connect with potential investors.

Life Science Angels (LSA) and Tech Coast Angels (TCA): These organizations provide a targeted network of investors for specialized sectors such as health care or technology.

Online platforms

AngelList and Gust are both online platforms that allow you to create a profile, and make it visible to investors. Gust also offers discounts on business services, such as hosting.

Angel Investment Networkspan size=”font-weight 400 ;”>: This is where you can go international. Get your pitch in front of international investors.

Incubator Events

Demo Day is the culmination of accelerator programs by YCombinator or Techstars. This event brings together venture capitalists as well as angel investors. Attending these events, even if you do not get accepted into an incubator can provide networking opportunities.

Media coverage

Strategic media coverage can help you capture the attention of angel investors. Broadcast any milestones or new partnerships that your startup has achieved. In industry publications such as Forbes or Mashable, well-crafted articles can attract investors who don’t use traditional channels.

X, formerly Twitter, and LinkedIn are goldmines when it comes to finding angel investors. Don’t be afraid to tell people about your startup and to get their attention.

In person networking

Angel investors are often lurking at events, seminars and industry meetings. Angel investors often attend these events to find promising startups. To expand your network, keep an eye out for event announcements by groups such as TechCrunch.

Alumni connections

Did you earn a degree from an university? Tap into your alumni network. You may find angel investors who are successful. Some universities have their own angel networks.

Forums and blogs for niche audiences

Join forums and websites that attract investors. Angel investors are often attracted to websites that cover startups, technology, and industry trends. Make yourself visible by commenting, writing guest posts or featuring in features. This can help you connect with investors that you may not have otherwise found.

Friends & Family

Never underestimate the importance of personal relationships. Often, the first investment you receive comes from people who know and trust you. Mixing business with family and friends can be complicated.

How to screen angel investors

It’s more than simply shaking hands to seal a deal. You need to make sure that you and the investor are a good fit. This can be done by:

Clarifying investor’s role

You should ask about their level of involvement. Do they want to be involved? Are they expecting a seat in the board? This will help you determine if the role they play is what your startup requires.

Understanding investment terms

Check the terms of investment carefully. Examine the equity they are requesting. Find out how and when they plan to distribute funds. This ensures that everyone understands the financial structure of the deal.

Digging into past investments

Look at the startups that your angel investor has invested in. Success stories are important. Success can mean more than financial support. This could indicate valuable insight and mentorship.

How to pitch angel investors

Not sure how to begin? You can use these tips to help you navigate the process.

Confidence doesn’t only apply to in-person meetings. Believe you can succeed before you send that first email.
Angel investors are savvy, but they’re also time-poor. Avoid jargon, and describe your business in a way that anyone can understand.
Imagine sending a friend a text message with your business idea. Be as concise and clear as possible.
Create a pitch deck. Use images to break up the text. Your opening slide shouldn’t overwhelm, but should capture.
Shareable links are the way to go: Forget PDFs. SlideShare is a great service to use to send a link to your presentation.
Create rapport. Your Zoom meeting or call isn’t all about the pitch. Start with a personal note, such as a comment about their background, or a short, engaging story about your business.

What angel investors are looking for

Angel investors are looking for a return on investment. When evaluating startups, they focus on certain aspects.

Experience as a founder: A founder’s track record speaks volumes. Angels will look at your past ventures in order to determine whether you can grow a company.
A solid business plan will reveal your strategy. Angel investors are convinced by your market research and revenue projections.
Unique product: A stand-out product or service grabs attention. Not all products are created equal. They must be able to solve a specific problem or meet a particular need.
Existing income: Profits are a good indicator. You’re on the right track if you are already making money.
Investors are looking for growth potential. Can you make a small business a leader in the market?
Angels are looking for a way out that will make them money. They are looking for a plan that is feasible, such as a business sale, or an initial public offering to cash out.

What is the percentage that angel investors receive?

Angel investors’ equity stake in a startup can fluctuate. It’s usually between 10% and 20%. The percentage is correlated with the size and perceived risk of the investment.

Some angel investors choose convertible debt instead of equity. The investment can be converted into equity in the future, typically at a discounted price. This method offers flexibility to both the investor as well as the startup.

Working with angel investors

You now have a complete guide on how to find, present to and make a lasting impact on angel investors.

They can help you turn your entrepreneurial dreams into reality. Be sure to make the effort to convince them your startup is worth their investment.

By using the tips above, you will be able to confidently pitch investors for the money your venture requires.

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Author: Adeel Qayum

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