How to Find Angel Investors for Your Startup

Jonathan Lee
August 30, 2022
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Community

Step 1. Where to start

Your first step to finding an angel investor is to decide whether or not your business actually needs one, and what kind of angel investor would suit you best. There are several different kinds of funding available for entrepreneurs and small business owners, including venture capital, loans, grants and crowdfunding. Each has its own benefits and drawbacks, so it’s important to research them before deciding which one is best for your specific needs. Be realistic about how much money you want to raise; if an angel investor doesn't invest in your company because they think it's too risky, then they might not be the right fit for your business anyway.

Before you start seeking out angel investors, it's important to know what you want from them and what you can offer in return. You should have a clear idea of your company's goals, how much capital you need, when you want to raise it,  how you'll use the funds, and how much equity you're willing to give away. Also be aware that investors will want to see a viable product or service before they fund any venture.

By having all this information ready when approaching an investor, you show that you've done your homework and are serious about your business. It also shows that the potential investment is in good hands.

Step 2. Validate if a market exists for your product or service. Find product-market fit- or at the very least, have a plan to communicate your plan to.

In order to land an angel investor, you need to prove that the product or service you’re offering has product-market fit. Product-market fit is the concept of having a solution that fits well with a market. The best way to do this is simple–start using your product and see if people like it!

Of course, this isn’t always practical or possible. It can be very expensive to bring a new product or service to market and find out if it works. So in this case, start by proving your concept through other means: interviews, surveys, etc. You need proof that there is demand for what you want to offer before you can try and sell it.

The best way is by starting small and creating a minimum viable product (MVP). An MVP is usually a simplified version of your final solution without all of the bells and whistles that doesn't take much time or money to build.

Once your MVP is built, get it out into the hands of consumers as quickly as possible and see how they respond. If they like it and use it often, this could mean you're on the right track toward finding product-market fit for your idea.

Step 3. Craft a pitch deck

What is a pitch deck? A pitch deck is a presentation meant to give potential investors an overview of your business and its plans for the future. The purpose of a pitch deck is to sell your idea to investors, so you’ll want it to showcase how you plan to create value and make money.

Don't worry if you've never created a pitch deck before—it's not as difficult as it sounds. More than anything, remember that your pitch deck should be an engaging presentation of your idea and what success will look like for you and your angel investor. The goal is to get the angel investor excited about investing in your business!

While there are many different ways to structure a pitch deck, there are some elements that should be included in every one:

  • An introduction to yourself, your co-founders, and their backgrounds
  • An explanation of why you all make the perfect team to execute on your idea
  • A detailed description of the problem you're solving (and why it's a problem that needs to be solved!)
  • Your solution to the problem (e.g., screenshots or product overviews)
  • How you plan on making money with this solution (your business model)

Step 4. Join local angel investing groups

The next step is to find local angel groups. These are groups of private investors that get together and invest in startups, often as a syndicate. If you're trying to raise funding from an angel investor, joining a local angel group is the fastest way to meet potential investors.

But not all angel groups are equal.

You want to make sure you join an active group that invests in your industry and at your stage. The best place to find these active groups is AngelList, which has a directory of thousands of angel investing groups around the world.

Look for groups that have been active recently- those that have made more than 5 investments over the past year. Next, look at their portfolio and make sure they invest in companies similar yours. Then, find out how they source deals and present them to the members (do they have one lead investor who sources all the deals or do they encourage members to present their own deals?). Finally, take a look at their membership stats and make sure there are enough members so you can have several meetings with different angels before making any decisions on how you might allocate equity.

Another factor you should consider when evaluating potential angel investor syndicates is whether or not they invest at your business stage. Most syndicates focus on certain stages of funding (usually one or two), so it's essential that your business fits into their area of interest if you want them to take you seriously as a potential investment candidate. 

Finally, look at how each group sources deals, as well as how candidates present their companies and what is expected of them during the process leading up to an investment decision being made by the members of the group. In other words: How do they source deals? How do companies pitch? What is the due diligence process like? These factors will vary depending on the syndicate's composition and culture, so be sure to research this thoroughly before reaching out with an email introduction or Zoom request.

Step 5. Consider applying to an accelerator

Depending on your goals and needs, joining an accelerator could be a great decision. The top accelerators provide a lot of support for entrepreneurs, including helping them find angel investors and mentors who can help with things like building a company culture. In addition to these networking opportunities, many accelerators have venture capitalists who invest in their companies at the end of the program.

If you are interested in applying to an accelerator, consider doing some research first. If you know someone who has been through one, reach out to them and ask how it went. You will want to make sure that the program will actually help your business grow if you join it. You also want to be sure that you're getting into an accelerator with a good reputation--you don't want people hearing about your experience there and wondering why you joined something so poorly run! Some examples of well-known programs include Y Combinator (https://www.ycombinator.com/), TechStars (https://www.techstars.com/) or 500 Startups (https://500.co/).

While you may not have immediate access to angel investors during the entirety of your time in the accelerator program (usually three months), when it's over, you'll leave with connections that can help you build lasting relationships that result in further funding opportunities later on down the road.

Step 6. Find a similar company to yours by using CrunchBase or reading the news. Look for their investors and add them to your target list. Map out how to get a warm introduction to these investors.

Your first step is to go off and search for a few other companies that are already operating within the same space as yours. You can use tools like CrunchBase or just spend some time reading the news to understand  which other companies are operating in your space.

Once you have a list of these similar companies, it's time to do some research on which investors invested in those startups. You can easily find this information through various sources online, such as AngelList or SEC filings (basically any company that has raised more than $500K must file with the SEC). 

Additionally, you don’t just have to find investors by looking at other companies in your industry. It can also be helpful to look at companies that are solving the problem you’re trying to solve or companies that serve your ideal customer.

Here's an example: If you’re building a tool for professional services organizations, look for companies that are serving doctors, lawyers, and accountants. Is their business growing? Do they have any investors? Who are the investors of these types of businesses? When you find an investor who has invested in multiple similar businesses over the years, add them to your target list.

Once you've done enough digging around and found yourself an interesting list of prospective investors, you should map out how you'll get introduced to them. Who do you know who knows them? Who could help get you an introduction? We often recommend mapping out someone’s network to see if there are any connections to be made. Sometimes it takes only one introduction from a mutual connection (which is why LinkedIn introductions can often be very useful). 

Finally, remember that many investors are actually in your shoes too—building their careers as angel investors for the first time as well. Therefore, don't be afraid if somebody tells you "no" or if they say they're not interested in investing right now—just move on to the next investor! With so many great angel groups out there who have money waiting to be deployed into promising startups, there's never any reason why you shouldn't keep hustling forward until somebody says yes!

Step 7. Revisit your network of people who know you and your business

Think about who you know. Who do you talk to on a regular basis? Friends? Colleagues? Family members? If you’re just starting out, then your network of potential angel investors will be small. Don’t panic! You don’t need hundreds or thousands of friends and family members in your corner; you just need a few people willing to trust you and help fund your business venture. 

Before reaching out to them, think about what they do for a living. What are their interests and hobbies? Are there any connections between the two of you that could speak to the fact that they would be interested in investing in your startup business?  Do they have any common ground with what your business does? Angel investors are looking for businesses that resonate with them personally, so don’t be afraid to use this connection as a way to make an initial contact.

 If an individual is interested in your business but doesn’t have the capital needed for an investment, ask if he or she would be willing to refer someone else who might be interested or able to invest. You never know where this could lead!

Step 8. Remember that many investors are in your shoes, too

It's easy to feel intimidated by a room full of angel investors. But it shouldn't be. Investors—even the most successful ones—don't know what the future holds any more than you do.  As you talk with investors, remember that they’re human, too—and many of them used to be founders. 

Many investors are former startup founders, which means they know first-hand what it’s like to have a big idea and an even bigger passion for making it happen. They know it can be scary to ask someone for help and support, but if their shoe were on the other foot, that’s exactly what they would do. 

They also know how hard it is to make business decisions with such little information about the future. So if you meet an investor who knows everything about your industry or trend, run away! The best investors are the ones who can admit when they don’t know something—and then go find out more. They make decisions based on the data in front of them, not what they think might happen in three years or five years down the line. You want an investor who makes up her own mind after talking with every stakeholder (including you), not someone who follows along just because her colleagues did so first. And above all else? A great investor will never try to bully you into changing your mind by threatening to pull out unless you do as she says; instead, she should be willing to change her mind based on new evidence and insights from people like you.

Step 9. Knowing how helpful angel investors can be will inspire you to continue building your own “angel army.”

Angel investors are important to a founder's startup journey because they not only provide capital, but also act as mentors who can help in other ways: 

  • Add credibility. Getting an angel investor to come on board with your company is a signal that you have done something right. It shows that you've been able to convince someone with the experience and knowledge needed to evaluate the potential of a business. 
  • Open up their networks. An angel investor is usually someone who has professional connections in the industry in which you operate, and this can be highly valuable if you need to find more funding or hire people for your staff. They can introduce you to potential customers, employees and vendors—all critical to the growth of most startups.
  • Hands-on help. Experienced angel investors often offer helpful business advice, guidance on marketing and sales strategies, help negotiating deals and introductions to other successful entrepreneurs who can serve as mentors or advisers for your startup’s executive team

An angel investor's value goes beyond lending her money to your business or helping out a friend or family member starting a new venture or expanding an existing one (which is what most of them do). An angel investor can also play a valuable role in helping you figure out how to get started building your business idea into a profitable company.

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