Angel investors are commonly deemed accredited investors by the Securities and Exchange Commission. Accredited or not, the common goal of angel investors is to give small business owners the financial support they need as their businesses grow and develop.
Although this is a non-traditional method of financing, it doesn’t come without a price: Angel investing is a form of equity financing in that the investors typically require a share of owners’ equity or a convertible note in exchange for their business investment. To help propel your business to the next level, here’s a look at how to secure one or more angel investors that invest in startups.
How to Find Angel Investors
Angel investors usually are certain trust or business companies or wealthy individuals that meet the SEC requirements for accreditation. For individuals, accreditation requires one of the following:
- A net worth of at least $1 million
- An annual income of at least $200,000 in the past two years, with an expectation of the same for the current year
When looking to find private investors, you can either search for individuals, members of a small investment business or associations of angel investors. Here are some good places to look for these small business investors who know how to invest funds in a growing company:
- Industry-focused events, like conventions
- Online platforms and websites
- An angel investment network or group
- Fundraising advisers
Once you’ve figured out how to find angel investors, it’s time to make your pitch so that you can secure the financing your small business needs to reach success.
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How to Pitch to Angel Investors
When you meet potential angel investors, your initial communication could set you on a path toward successful funding. Here are the steps you should take to secure your investor:
1. Describe Your Idea as Concisely as Possible
When first meeting with potential investors, you won’t have time to get into the nitty-gritty of what your company does. Prepare a short “elevator pitch” ahead of time that you can deliver to spark their interest.
2. Open Lines of Communication
Once your potential angels are interested, they might be interested in chatting with you before you set up a formal meeting. Provide your contact information to them in advance and encourage them to contact you at their convenience.
3. Get a Cheerleader Investor
Money tends to follow money. When you’re dealing with a group of angel investors, once you recruit one, you’re likely to find others who are willing to invest funds that will help with your new business.
4. Do Your Homework
Angel investors aren’t just inanimate piles of money — they tend to have a particular investment style. Research the past investments of any angels you intend to solicit so you can understand their needs as investors; then, you can focus your pitch on what is likely to appeal to them.
5. Make the Most of Your Moment
Once you’ve gotten angel investors interested to the point that they’re willing to listen to what you have to say, you’re going to have to deliver a great presentation to maintain their interest. Keep it short, tell a good story and don’t shy away from the financial aspects of your pitch; discuss both the needs of your business and the rewards that the angels might reap from their investment. Be conversational and ready to answer questions with the goal of cultivating a relationship, not just a sale.
6. Close the Deal
You’ll never have a success rate of 100 percent when it comes to pitching angel investors. But if you follow these steps, you could be in a position to get your business goals underway.
Remember that in exchange for your initial funding you’ll be expected to give up something of value, perhaps a percentage of your company or some convertible debt, which pays interest and gives your investors the right to trade that debt for equity. And after you’ve signed a deal, keep things running smoothly by honoring every aspect of it and making your angels feel they are part of your corporate family.