How to Find Angel Investors
Many burgeoning small businesses have walked a well-trodden path from angel investment to venture capital and ultimately to an initial public offering. Angel investors have become an institution unto themselves by providing young companies with an important source of equity investment, albeit at a steep price.
For business owners looking to partner with an angel investor, read on to learn more about their motivations, pros, cons, and how to find them.
An Overview of the Angel Investor World
Angel investors, or angels, in short, come in many forms, but many of them previously worked as successful founders and CEOs. Often, they become angels in part to give back to the entrepreneurial community by providing a critical source of early investment capital for very early-stage businesses.
An entrepreneur could theoretically find an angel investor in any community around the country, but many angels cluster together in the major tech hotspots in the US: San Francisco, Silicon Valley, Seattle, and New York City. These major metropolitan areas have accumulated a critical mass of wealth, expertise, and capital, all of which have led to the creation of the angel investment world.
Angel investors usually come across as high net-worth individuals who have become accredited investors thanks to their sale of ownership in highly-profitable firms. Their next goal in life revolves around identifying promising early-stage businesses and giving them the capital they need to get to a Series A venture capital fundraising round.
Where to Find Angel Investors
As former entrepreneurs, angels tend to cluster together in angel groups and informal organizations such as an angel investment network. These communities run the gamut from formal to informal, but they hinge on the personal connections between the angels.
For an entrepreneur who wants to find early-stage equity investors for their startup, finding an angel investor serves as the first step on that journey. Gaining access to these networks involves balancing the unique value proposition of the business, business acumen, and a solid understanding of what motivates these investors.
On the Web
There exist numerous websites, forums, and social media networks that can connect business owners with angel investors. Some of these networks include:
- AngelList: This site acts as a sort of angel investing crowdfunding platform. It connects investors with founders to facilitate early-stage equity investments. Other options exist too, including a syndicate function and fund management platforms.
- Angel Capital Association: The Angel Capital Association or ACA functions as a membership-driven site which connects angels to founders. The ACA also publishes research reports on funding trends and other insights.
- Gust: A relatively new player to the online angel investment space, Gust acts as a multi-purpose platform designed to help entrepreneurs grow their businesses in conjunction with a network of 85,000 investment professionals.
- Angel Investment Network: For entrepreneurs looking to fundraise at an early stage in the business growth cycle, the Angel Investment Network offers crowdfunding on an equity basis.
The key consideration when searching for angel investors on the web involves taking into account whether or not a particular investor comes across as trustworthy and dependable.
Bringing on an inexperienced angel investor can pose major problems for a young business, including major equity dilution (as an angel investor will likely want anywhere from 10% to 20% of the business if not more), a potential source of drama among the founders, and potentially even the collapse of the company if such tensions prove too difficult to address.
Often, finding an angel in real life may serve entrepreneur and founder interests more effectively than relying on an online platform.
In Real Life
Establishing a real-life connection with angel investor networks can help you find the right equity partner to bring into the business. Typically, angels will want to meet the founders, understand their business plan, and ultimately have some level of confidence in the merit of the core business idea.
Starting in your home market can help to jumpstart your angel search. While the largest equity markets in the world reside within the major coastal cities, metropolitan areas of sufficient size have some degree of angel investor presence.
The next step to getting started involves identifying local meetups and networks which have high net worth individuals who have interest in functioning as angel investors. Local universities may also have access to these networks and could provide this resource to individuals affiliated with their educational programs.
In some cases, you may also encounter a syndicate, or group, of angel investors. These investors prefer to function as a group and make investment decisions as a collective. If you come across such a syndicate, you may need to convince the entire group of the merit in your business’s unique value proposition and growth prospects.
Other areas to conduct your search include country clubs, local money management firms, and other local institutions such as religious institutions and public service organizations. Ultimately, this approach involves putting your name and business out there and networking as much as possible in your local community before branching out to other regions.
Choosing the Right Angel Investor for Your Business
When considering which angel investor to bring on to your business, you should consider the following questions:
- Do they have the right experience?
- Do they have the right expectations?
- Do they share your passion?
In addition to these questions, you will also want to consider the degree to which that angel investor can function as a reliable part of your board. After all, an angel will ask for a substantial amount of ownership interest in your business. They effectively become another business partner whose input has ramifications on the overall functioning of the operation.
Do They Have the Right Experience?
An angel investor should have prior experience in founding and operating a startup. Ideally, the investor should have successfully exited one of these businesses.
Do They Have the Right Expectations?
Startups take time to grow, and your potential angel investor should have a long-term horizon of at least 7 to 8 years. Rome was not built in a day, and neither will your business achieve unicorn status overnight.
Do They Share Your Passion?
While this does not function as a strict requirement, an ideal angel would have the same degree of excitement and passion for your industry as you do.
Building a Relationship with an Angel Investor
After meeting an angel investor or syndicate, you will want to start your relationship off on the right foot by providing proof of the merit of your business idea, how you plan to gain traction over time in your market, and demonstrating that you have a sound understanding of the specific industry in which your business operates.
What To Do If You Don’t Like Your Angel Investor
Not all relationships work out in both the business and personal worlds. Nevertheless, if you discover that your partnership with an angel investor has not turned out the way you originally anticipated, try these next steps:
- Consider a way to buy the angel out of their existing equity either by finding new angels or bringing on VCs.
- Enter into arbitration with your angel investor in order to work out any major differences and come to a compromise.
- Do your due diligence next time prior to committing to such an important decision.
Is An Angel Investor Right for Your Business?
Venture capitalists typically won’t express interest in your business early on. As such, you must fund your initial operations with your own money or by seeking out an angel investor. Ultimately, an angel investor might be the right choice for your business if:
- Finding angel investors is possible in your local market. Having to travel to other regions may pose a difficult challenge on your early operations and personal finances.
- You have a set of non-negotiable requirements for your potential angel.
- You have not yet achieved the critical mass necessary to bring on venture capitalists.
- You want the opportunity to have access to the mentoring an angel investor can bring to the table.