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What our members have to say...
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"DONE DEAL - Pulse Tidal has developed a machine which can generate electrical power from the ocean tides; offering clean, renewable, invisible, and totally predictable, electricity. Their product, the Pulse-Stream generator, has been developed to provide cost-effective electrical output and minimise environmental impact."
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Tips for Turning the Heads of Angel Investors
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Angel investors are an ideal way for entrepreneurs to raise capital. They have the power to replenish an early-stage startup with the funding it needs and do not usually entail the level of equity and stake-holding that venture capitalists demand.
Of course, angel financing is not easy to obtain, as organizations need to assert themselves in a number of areas to even turn the head of an investor. The investment market is competitive, and with economic conditions how they are it’s even more difficult to present a company as a promising and lucrative enterprise.
Mike Levinson, managing partner and co-founder of startup incubator DreamIt Ventures, tells Inc. magazine that there are four main considerations that angel investors will make. They are:
1.) Is the idea simple enough for anyone to understand and buy into?
2.) Does it solve a market problem or meet a need?
3.) Is it a big enough market and customer base for the idea?
4.) Does the entrepreneur have the right people on the team to pull it off?
Not surprisingly, a large swath of entrepreneurs fail to provide a clear “yes” answer to each of these questions. According to data from Gust, only about three out of 100 organizations that initiate the formal angel investment process actually receive funding. The blog Startup Professionals Musings reports that 70 percent of these companies never make it past the initial screening process.
While entrepreneurs should work primarily toward addressing the questions listed above, there are some steps entrepreneurs can take to improve their chances of being noticed by angels.
Incorporating your startup is one such example. Sole proprietorships and partnerships – apart from appearing less formal and professional – are difficult to invest in, as the founders and proprietors are made more vulnerable to legal or taxation liabilities. Accordingly, startups should form as an S Corportaion, C Corporation or Limited Liabaility Company. This will allow the organization to share equity among investors and owners.
“Investors expect a one or two-page executive summary sheet for the initial screening, backed up by a ten-slide Powerpoint investor presentation,” writes Marty Zwilling for the blog. “Remember to aim the content of both of these at investors, not customers. They must amplify your ‘elevator pitch’ to investors, as well as key points from the business plan and the financial model.”
You may already have a business plan, but you’ll need to either redo it or upgrade it for investment-level consideration. It’s important for founders to realize that their vision is not assumed or easily understood by every one around them, especially investors, who are motivated by returns. Your business plan should address each area that may be overlooked by the company heads. It should also address key financial considerations such as current valuation, market cap, funding needs and exit strategy. Founders may want to draft a financial model as well.
“Like the business plan, a financial model is required as much for your own use as to impress angel investors,” Zwelling adds. “In most cases, a Microsoft Excel spreadsheet is adequate, with projection formulas for revenue, costs, and cash flow over the next five years. Variables for ‘what if’ questions add credibility.”
Ultimately, you need to do your homework. A meeting with angel investors is a major opportunity that cannot be taken lightly. Try to anticipate every question that may be asked and impress your potential investors by preempting their questions with sufficient detail about your vision, its inner workings and where its headed.
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