How to approach angel investors

Once you’re truly ready to raise an angel round, craft a plan for who you’ll go after, and in what order. Keep in mind the whole process typically takes three to six months. Here are some pointers:

Fans of yours. Start by approaching people in your inner circle, including friends, former colleagues, and family members. If you’ve established their trust over the course or a long term, in-depth relationship, and if they have ample liquid assets, they’ll be the easiest people to get on-board. Get them to write checks, but tell them you won’t spend any of their money until you hit a pre-determined minimum amount. For example, if you are raising $500,000, set a minimum at $300,000. That way the first investors won’t have to worry that you’ll burn through their money, fail to raise more, and get yourself halfway pregnant.

Fans of your space. As you begin to network beyond people you know, find angels who are industry insiders – people who share your insights into the market. They’re already believers in the opportunity, so you’ll just have to convince them you’ve got the right team and approach. Entrepreneurs who have build and sold companies in related fields are also particularly attractive, because they understand both the market and the startup process. Best of all, these people aren’t just check-writers – they are “smart money” investors who can help you build your business, by advising you on strategy, and making introductions to potential suppliers, customers, distribution partners, employees, etc. To find these people, you’ll have to do a lot of networking. Angelsoft.net can help. So can venture capitalists, who tend to have great contacts in areas related to their investment focus.

Known lead. Once you’ve raised at least 15 – 25 percent of your round, it’s time to go after the big-kahuna:  A person who is widely recognized as one of the foremost experts in your field, willing to put their money and reputation on the line. This could be the CEO of a company in an area related to yours, a high-profile professor of entrepreneurship, a venture capitalist investing their personal funds on the side, someone in a leadership position at an angel network, or a super-angel like Ron Conway who has made investments in over 75 startups. This person’s involvement will put a stamp of approval on both your startup, and the deal you are pitching (no more questions about valuation after this person invests).

Angel networks. Angel networks, like New York Angels, the Band of Angels, or Common Angels, are getting more and more sophisticated in the way they assess and negotiate investment opportunities. They are tough nuts to crack, but you’ll vastly improve your chances if you have a good amount of your round raised, and a known lead involved. The beauty of the angel networks is that when you pitch them, you’ll get in front of a dozen or more people, each with a big checkbook. If you get one to bite, you’ll likely get others, and you may even be able to close your entire round.

Fillers. If you are just a bit short of closing your round, don’t give up. You’ve already done the toughest part, so get the round completed (or even over-subscribed, meaning you raise more than your target). At this point, broaden your reach to include trust-funders, investment bankers, hedge fund moguls, and others with ample means.

What tactics have helped you raise angel capital? Please share comments…

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