Today, we’re going to take a close-up look at Angel Investors. If you’re at the startup or early scale-up phase of your business, they’re the group that are most likely to consider backing you.
We’ll discuss the other popular sources of investment – Crowdfunding, Venture Capital, Private Equity, and Brokers and Investor Relations – another time.
Angel Investors vs Institutional Investors: what’s the difference?
It all boils down to money.
On the whole, Angel Investors have a lot less money to invest than Institutional Investors. That’s because they are usually high-net-worth individuals seeking to increase their wealth by investing in other businesses. Unlike an Institutional Investor – an entity that invests money on behalf of its clients or members – an Angel Investor tends to come from a business background. Business is what they understand, it’s in their blood, and they feel much more comfortable using their capital to back another business instead of investing it in property or stocks.
Angel investors are much more likely to see what a great opportunity your business is long before anybody else. They’re also much more willing to take a risk on you by coming in at the Pre-Seed, Seed or (more recently) Series A rounds of your Fundraising Journey. That’s because they have less money to invest, so they’ll want to maximise their returns as much as possible.
The changing landscape of Angel Investment
Once upon a time, Angel Investors followed their instincts or their passion. Not anymore.
Times have changed a lot since the late noughties when most Angels just wanted to jump onboard a business idea that excited them. The hits and misses of the last two decades have taught them some hard lessons and made them wiser and more sophisticated. These experiences mean they’ll drill down into your offering with a great deal more diligence and detail than they used to.
In many ways, they’ll approach your investment just like an Institutional Investor, so you’ll need to provide them with the same level of detail in your fundraising assets that an Institutional Investor would expect. Unfortunately, the days of hooking an Angel Investor by appealing to their adventurous spirit are long gone.
You should also avoid making the mistakes that will guarantee your business is rejected by Angel Investors by reading our handy guide.
“If Angels typically invest less money, that means I’ll need to attract more of them, right?”
Absolutely. Angel Investors are the right people to approach for funding your start-up, but you might need more of them than you assume.
At Robot Mascot, we spend a considerable amount of our time helping entrepreneurs connect successfully with Angel Investors. In our experience, the average Angel Investor only invests £50,000 across two deals per annum – i.e. £25,000 per investment.
So, if you’re looking for a £150k investment, you’ll need to attract six investors on board before you can close your funding round.
The good news is, Angel Investors like to follow the herd. Thanks to the growth in popularity of ‘Angel groups’, where investors share their knowledge and help each other identify the strongest deals, once your finely tuned business proposal has lured one of them, others will follow.
Are there different types of Angel Investors?
Angel Investors are human too, so they have the same strengths, weaknesses and quirks as you and I. Also, the wider you cast your net, the likelier it is that you’ll encounter most, if not all, of these distinctive types of Angel Investor on your investment journey.
There’s the Non-Tech Investor, who might not be up to speed with the latest tech developments but will probably have vast business experience. That means they won’t be as interested in the brilliance of your tech idea as much as they’ll be focused on the strength and water-tightness of your business model.
Then there’s the Detail Investor, who’ll take a fine-tooth comb to every detail of your business plan and financial projections. They’ll need to be reassured you’ve done your due diligence, and they’ll expect you to provide all the documentation and sureties possible to prove you’re a solid, trustworthy investment opportunity.
The Sheep Investor believes there’s safety in numbers, so they’ll be much more likely to get on board with your business when they see other Angel Investors have committed to it first. That’s fine because you can go back to the Sheep Investor and round them up when two or three other Angels are already baaing happily in your pen. But if your investor pen is empty, don’t expect a Sheep Investor to lead the way.
If you’re looking for an investor who wants to give more to your business than just money, you’ll want an Insightful Investor on your team. Insightful Investors have the knowledge and connections to take your business to the next level, and, most importantly, they’ll want to share that knowledge and those connections with you to accelerate your (and their) success.
A Greedy Investor can be a potential headache, or they may be a helpful barometer that you’ve overestimated how much you should attempt to raise at a particular stage of your Fundraising Journey. They’ll dispute your initial valuation, and they might ask for more equity than you’re offering. Consider your response carefully; don’t be afraid to negotiate if you believe that’s appropriate and, if your valuation is being continuously challenged, that’s a good sign you should probably look at it again.
When an investor is open to your pitch but not ready to invest their cash right now, they’re probably a Skint Investor. However, that doesn’t mean they won’t invest in the future, or they can’t be useful to you now. Build a relationship with them, and they might introduce you to other investors and spread the word that you’re an investment worth looking at. The chances are that the Skint Investor has already committed themselves as far as they currently want to go with somebody else, or they’re especially wary because of investments that didn’t go as well as expected in the past. Don’t worry; just like the Sheep Investor, there’s a good chance you’ll be able to round them up later.
Finally, the Doubtful Investor can get you where it hurts; by doubting you as a founder and questioning your credibility as an investable entrepreneur. The important takeaway here is – don’t take their doubts personally. You can usually win over a Doubtful Investor by delivering a perfect pitch, a thorough business plan, realistic financials, and by standing up to their scrutiny. Remember, all investors represent a challenge, and you can overcome any challenge by following the Six Principles of the Perfect Pitch and ensuring you include the three fundamentals that investors require from your financial projections.
We’ll talk about other sources of investment opportunity soon. Can’t wait until then? Get a head start by downloading a free copy of our COO’s best-selling book ‘Investable Entrepreneur’ here.