There’s a somewhat romanticized ideal of the budding entrepreneur who spends every last bit of personal wealth to bootstrap a business. Yet for many early-stage founders and their families, risking it all isn’t a feasible or responsible decision. That’s where angel investors can help.
Angel investors are able to invest in alternative investments such as providing seed capital to young ventures. If you can effectively communicate to investors the vision of your venture and its future value, you can attract funding from these angel investors. That said, attracting angel investors isn’t a guaranteed process. To get their attention, you need to set your startup apart, as well as be prepared to show why your business is positioned for success.
Though that might sound challenging, it’s not impossible. The angel investment landscape is still booming, despite a small contraction after a post-Covid rush. In fact, across Missouri, the Midwest, and the nation, angel investor activity is strong.
According to statistics from the Center for Venture Research, more than $18 billion in angel investments flowed into 54,735 entrepreneurial ventures in 2023 alone. Two of the top five sectors that appealed to angel investors were healthcare services and biotech, which may be particularly meaningful if you’re one of the several life sciences startups at the Missouri Innovation Center (MIC).
Again, the numbers bode well if you’re bent on connecting with angel investors. Read on to further understand what angel investors are looking for — and how you can show them you’re exactly the right fit for their funds.
Are angel investors another name for venture capitalists?
It’s a common misconception that the terms “angel investors” and “venture capitalists” are interchangeable. They’re not.
Angel investors are individuals who risk their own wealth to invest in very early startups. Their goal is to get into a business at its initial inception. In contrast, venture capitalists typically wait to see if a company has gained momentum before spending organizational (not personal) funds on the company.
As you might presume, angel investors are willing to trade uncertainty for significant paybacks. In 2021, angel investors saw an average return rate of 2.7 times their investment when the startups they funded were sold, per the Angel Funders Report 2022. However, returns can be much higher for angel investors who have the tolerance and patience to wait for their startups to fully mature.
Angel investors don’t tend to invest as much as venture capitalists can and do. For instance, the average of all angel investments from 2022 was $339,390. That’s far less than the millions and billions associated with venture capitalist investments. Nevertheless, if your proof of concept is strong, you may be able to attract more than one angel investor to back your company mission and vision.
This isn’t to suggest that angel investors aren’t motivated by financials. They are, but they tend to be equally motivated by the challenge of helping a startup construct a runway and get off the ground. That’s why angel investors form relationships with incubators like the MIC. They’re looking for opportunities to “get in on the ground floor,” so to speak.
Angel investors typically aren’t satisfied with just sitting on the sidelines, either. They take a more proactive approach to investing. It’s not unusual for angel investors to provide mentorship or foster business connections. Yes, they expect equity for their money and energy. But they thrive on giving their investments personalized attention.
How can you catch the interest of an angel investor?
The world of angel investing is competitive. Therefore, if you’re an entrepreneur, you need to prepare conscientiously before attempting to get a deal with an angel investor.
First, make sure your startup’s product or service makes sense for your intended market. If you can’t demonstrate any growth potential, an angel investor will question whether you’re a calculated risk.
After you’ve determined that you have an attractive market, you need to form a solid foundation. The team you bring together should have complementary and diverse skills. In fact, having people from wide-ranging backgrounds can make your startup more attractive. An angel investor will see that you’re not just bringing one voice to the table; you’re bringing many eyes and experiences to every problem you encounter.
Next, design your business model to lead toward profitability. Angel investors may not expect a quick exit (like venture capitalists can), but they aren’t going to gamble on a startup without a logical roadmap to turning a profit. At the MIC, our team of experts can help you design your business model to show a clear pipeline to profitability and growth.
Finally, pay attention to securing any intellectual property. It’s one of your competitive advantages, after all. At that point, you should be able to start building your startup’s financial projections, which will indicate what kind of funding you need.
When you have all those elements in place, it’s time to craft a pitch deck that will answer an angel investor’s questions and get your startup noticed.
What does an angel investor want to see in a pitch deck?
You’ve probably heard the term “pitch deck” before. It’s essentially a short presentation that explains to a potential investor why your startup is worth funding.
There are a few key components of effective pitch decks, starting with slides that answer the “Why?” behind your company’s inception. These include a slide or two that points out the problem that exists, followed by a slide that lays out your specific solution to the problem. From that point, you can showcase the fruits of your research in future slides.
As you’re writing your pitch deck, remember to think like an angel investor. For example, spend more time on the hard facts, like the size of the market, any growth you’ve made thus far, your competitor analysis, the advantages of your team, and how you’ve used whatever money you have.
Of course, you can’t only tell your story using data. Put on your narrator attitude and act like a storyteller. Angel investors may be more apt to consider investing in your startup if you have a compelling narrative. Certainly, your financial projections will always sway them. But if they’re waffling, they may be won over by your charisma and enthusiasm for what you’re doing.
That said, spend less time pitching and more time listening. One of the biggest pitfalls entrepreneurs make is talking too much during their pitches. Your pitch deck should be inviting on its own; you’re there to fill in the gaps, not to read from your slides or give a one-sided presentation.
At the MIC, we can help entrepreneurs master their business plans, which can be essential to forming pitch decks and pitch session narratives. Having insights and practice helps entrepreneurs position their emerging companies well when they’re in front of angel investors.
Where can you find and approach angel investors?
Before you can start using your newly minted pitch deck on angel investors, you need to find them. The MIC offers opportunities for its clients to meet Missouri angel investor networks, as well as attend exclusive events.
Can you take the old sales tactic of cold calling an angel investor? Yes, but warm introductions make more sense. Again, that’s a value of being aligned with a known organization like the MIC that can serve as a connection and resource.
How can you maintain lasting relationships with potential angel investors?
Your first angel investor probably won’t set up a deal with you immediately. The process of developing a trusting relationship takes time. Consequently, treat the connection like a budding business partnership and keep communicating.
For instance, you could send out regular updates to angel investors in your network. These updates should demonstrate that your startup is making progress and meeting milestones. Be sure to be genuine, though. It’s fine to be transparent about the roadblocks you’ve encountered and the workarounds you’re using to navigate them.
What are best practices for getting an angel investment deal signed?
Congratulations — an angel investor is willing to trade funds for equity. It’s a big step, and one that you’ll need to navigate with professional assistance. That way, you can be sure that you have all your documents lined up and legal considerations handled.
It’s fair to say that the experience may have stops and starts. An angel investor may question you in the middle of your negotiations, slowing the process. Remain focused and address any questions or concerns proactively and accurately. Leaning on your advisors and mentors will help you reach the finish line and secure your investment.
Yet it’s not enough to just line up an angel investor. You need to set expectations and lay out how the angel investor will be a support to your company. Some angel investors want to be hands-on to the point of being involved at a very detailed level. Other angel investors may be happy to be available when you need them, as long as they’re getting the reporting they expect.
Ideally, you and your angel investor should have clear roles. This will assist you in maintaining a tighter, more meaningful, and trusting relationship.
Are you ready for an angel investor?
Having at least one angel investor supporting your startup can give you the traction you need to move to the next stage of your organization. If you’re in the mid-Missouri area and want to take the next step toward angel investment, contact the MIC.
Our central focus is the creation of a cluster of high-technology companies. We routinely coach entrepreneurs, incubate new technology companies, and attract ventures to the region. In addition, we have deep connections with existing and emerging angel investors who want to meet — and fund — the dreams and goals of the next generation of life science entrepreneurs.
