Need Angel Investors? Know How to Attract Powerful Funding Angels
How to Attract Angel Investors & Get Funded
“SHOW ME THE MONEY!” Four little words from the hit ‘90s rom-com Jerry McGuire capture the spirit of startup entrepreneurship and the importance of attracting angel investors.
Whatever you want to call it – money, capital, funding, investment – the bottom line is you need it to start a successful business.
Even the best business idea in the world won’t get off the ground without some capital to invest. Research shows that a lack of capital is one of the most common reasons why small businesses fail.
If you don’t have enough capital to invest, you won’t be able to hire the talent you need, invest in production costs, market your idea or develop your offering to its full potential.
Securing funding for a great business idea can be challenging but possible. You can keep reading for actionable strategies for connecting with one of the most popular funding sources for entrepreneurs: Angel Investors.
In this guide, we explore the following topics to help you better understand angel investors and how they support startups:
- Types of funding for startups
- What is an angel investor
- Pros and cons of angel investing
- Who should use angel investors
- What angel investors are looking for
USE OUR QUICK LINKS TABLE TO JUMP AROUND:
- How to Attract Angel Investors & Get Funded
- Types of Funding for Startups
- What is an Angel Investor?
- Are Angel Investors a Good Idea?
- Who Should Use Angel Investors?
- How to Find Angel Investors – 9 Powerful Sources
- What are Angel Investors Looking For? How to Attract Funding Angels
- Creating a Business Plan For Angel Investors
- TAKEAWAY: What to know about Angel Investing & How to Attract Funding Angels
- LEARN MORE: 3 Top Rated Books on How to Attract Funding Angels
- FAQ CHEAT SHEET: Angel Investing & How to Attract Funding Angels
Types of Funding for Startups
Research shows that, on average, businesses with one to four employees spend $60,000 in their first year. [I] Before we dive into the nuts and bolts of angel investing, take a look at the handful of options for funding the early stages of a new business:
- Business loans – Working through a bank or other financial institution, small businesses can apply for loans they have to repay with interest. In addition to banks, businesses such as Fundera and Lendio leverage emerging technology to offer online loan marketplaces that provide alternative financing options to facilitate small business lending for entrepreneurs. Online marketplaces like these have helped more than 100,000 small businesses get access to over $2B in loans to start and grow their businesses.
- Venture capital (VC) investment – Pursuing funding through a venture capital firm opens the door for small businesses to raise money in exchange for equity that does not have to be repaid. However, venture capitalists have higher expectations and more stringent requirements for entrepreneurs to demonstrate high growth potential. To learn more about venture capital, you can check out Natfluence’s interview feature with Jonathan Medved, a leading high-tech venture capitalist and founder of OurCrowd.
- Angel investment – Instead of receiving funding from a VC firm, startups can recruit wealthy individuals or angel groups with the prospect of receiving equity in return for capital, also debt-free.
- Self-financing – Dipping into personal savings (and sometimes maxing out credit cards) is how many entrepreneurs keep their businesses afloat in the early days.
- Friends and family – Depending on your luck, your personal network of family and friends may be willing to loan or give you money to support the early days of your business.
- Regulation crowdfunding – Thanks to new SEC regulations, companies can use approved funding portals or broker-dealers to raise money from large groups of accredited and non-accredited investors through crowdfunding. Crowdfunding is typically used to raise funds for a specific cause or project by asking people to donate money, usually in small amounts.
To learn more about crowdfunding, you can check out Natfluence’s interview feature with Inc. Magazine’s Top 100 Female Founder, Karen Cahn, Founder & CEO of IFundWomen, the go-to funding marketplace for women-owned businesses and the people who want to support them with access to capital.
“My advice to all budding entrepreneurs is simple: Start now. Don’t wait for the perfect market timing. It has never been better to start a company. There is tremendous availability of capital…”– Jonathan Medved, Founder & CEO of OurCrowd
When possible, business owners can also rely on reinvesting profits from sales back into growth and marketing objectives.
Achieving profitability may not be an easy road, but there are many options.
Angel investing, for instance, is a powerful way to fund startups and, worldwide, it’s on the rise. Even during the chaos of COVID in 2020, markets saw the number of angel investors increase as well as the number of investments and dollar amounts associated with those investments.
Total angel investments in 2020 topped $25 billion, an increase of 6 percent over 2019.[II]
What is an Angel Investor?
Angel investors go by many names – seed investor, angel funder, private investor, business angel, informal investor.
Did you know? The “angel” part of the name actually has its roots in Broadway theater – wealthy individuals who provided capital for theatrical productions under threat of shutting down were referred to as “angels,” as they effectively saved the show.
Similarly, angel investors in the business startup world are individuals with a high net worth who invest their own money in early-stage companies, typically in exchange for ownership equity. Venture capitalists, on the other hand, work for risk capital companies that invest other people’s money in startup companies.
An entrepreneur’s family and friends may often act as angel investors. For example, famed investor and owner of NBA’s Dallas Mavericks, Mark Cuban, bought a college bar (while still in college) using $15,000 a friend lent him (and some of his student loan money). Not only did he turn the bar into a booming business, but he also became a tech pioneer and media investor who is now worth over $4 billion!
Capital that angel investors put into businesses can act as a one-time injection of funds to get a startup off the ground or provide ongoing financing to sustain a business through challenging early stages. Angels are typically accredited investors with at least $200,000 in annual income or a minimum net worth of $1 million. Depending on ownership stakes and business size, angel investments range from thousands of dollars to millions.
Well-known angel investors include big and small screen actor Ashton Kutcher, who invested $1 million into Skype in its early days, and Elon Musk, who dropped $10 million into X.com, which later merged with another company to become PayPal in 2000. (PayPal sold to eBay in 2002, earning Musk $180 million.) Peter Thiel invested $500,000 in Facebook, which skyrocketed to $1 billion.
Often, angel investors form networks called “angel groups,” where they pool resources and evaluate and invest in businesses together for a more substantial impact.
Are Angel Investors a Good Idea?
For fledgling businesses, angel investors can play a critical role in supporting the financial health and success of the company.
Pros and Cons of Angel Investors
Benefits of angel investors include:
- Alternative funding – Angel investors offer an attractive funding alternative to business loans and credit from banks or other financial institutions, which can be difficult for brand new companies to qualify for.
- Thought partners – Angel investors bring industry expertise and entrepreneurial experience to the table, offering guidance, advice, and coaching to help startups succeed.
- Deep pockets – In addition to their first investment, angel investors may continue to support financing your business as they believe in your mission, idea, and product.
- Networking – Angel investors thrive in professional ecosystems full of industry connections and may be able to introduce you to new business partners, customers, financing sources, and relevant resources.
- No debt – Since you are giving equity (stock in your company) in exchange for an investment, technically, you do not have any debt to repay. Angel investors may also loan you money that can be converted to equity later (a.k.a., convertible debt).
- Support – Angel investors are interested in high-potential, high-growth startups that can return on their original investment in a big way. They are motivated to support your business as much as possible to see it succeed and earn them greater value.
Pros & Cons of Angel Investors with fundraising expert, Alejandro Cremades
Cons of angel investors include:
- Giving away equity – While an outside investment alleviates some of the financial risk of owning a business, it also spreads out the decision-making across more stakeholders. Some angel investors may desire a large ownership stake in your company, leaving you with fewer shares than originally planned and incorporating more “cooks in the kitchen.”
- Time and effort – Due diligence on both the business and the investor side require significant time and effort. Startups need to provide a wealth of information to secure angel investment, from balance sheets, cash flow and bank statements to income statements, projections, business plans, you name it.
- Possibility of rejection – Recruiting high-impact angel investors takes more than just a great idea; it takes countless iterations on messaging, pitch decks, executive summaries, and business plans. All that energy and those resources may feel wasted if you are rejected for an investment.
- Lack of partnership – If you are in the market for an investment partner who will add value to your business and support its growth, be wary of angel investors who are simply looking for a return on their investment. They may not be as interested in helping you in a hands-on way you might expect.
Who Should Use Angel Investors?
Early-stage businesses and startups with high growth potential are prime targets for angel investors.
So, are angel investors a good idea for your business? Review this checklist to find out:
- Do I need external capital to fund the development of my company?
- Am I willing to give up ownership stakes (and potentially control) of my company?
- Do I believe my company would benefit from an experienced investor with industry connections?
- Have I proven user and market demand for my product?
- Do I have a strong business plan, a marketable product, and the time, energy, and resources to seek private investment?
- Do I know how and where to find angel investors? (Natfluence has you covered here — see next section!)
If you answered yes (or maybe) to most of those questions above, angel investing might be the answer you are looking for to fund your business!
How to Find Angel Investors – 9 Powerful Sources
Investors do heavy “due diligence” before opening their wallets. It’s just as crucial for early-stage businesses to research potential angel investors.
As a startup, you want to find a trustworthy angel investor with a proven track record of successfully supporting companies. In addition to money, they should be able to offer valuable connections and resources. You also want an individual whose interests and passions sync up with the mission of your business.
Here are some examples of popular platforms where you can find safe, reliable, and forward-thinking angel networks:
On a mission to increase the number of successful startups in the world, AngelList Venture first launched in 2010 as an email network, helping Uber raise its first seed money.
By 2018, AngelList reached over $1 billion assets under management (over $7 billion now), streamlining operations and fundraising for small funds powered by individual angels. With professional tools for both startups and investors, AngelList offers 9,500+ funds and syndicates and a record of funding over 150 unicorns.
Gust Angel Network
Called “the world’s largest startup network,” Gust boasts 800,000 founders and 85,000 investment professionals in its ecosystem. Gust’s SaaS platform equips entrepreneurs with everything they need to start, run, and raise money for their startup while providing relationship management and deal flow tools to investors.
Gust will evaluate your company and give you personalized insights, performance benchmarks, and due diligence tools to give you the best shot for acquiring investment.
Angel Capital Association (ACA)
14,000+ angel investors make the ACA a powerful driver of success for new companies looking for funding. One of the largest collectives of accredited angel investors, ACA is the go-to source for essential data and information connecting angels, entrepreneurs, and the startup support community.
Discover angel groups and accredited platforms for investment opportunities, stay on top of legislation affecting angel investing, learn more about angel investing and events, and much more.
Since 2011, MicroVentures has invested in over 400 companies through Regulation D, Regulation A, and Regulation C crowdfunding. With their unique platform, accredited and non-accredited investors can invest in highly vetted startups. Companies or startups that need at least $150,000 to $1,000,000 in capital are best served through the MicroVentures model.
Ultimately, this online equity crowdfunding platform enables angel investors to connect with startups to raise capital fast.
The go-to destination for all things “funding,” Crunchbase also offers quick insights into value-driven angel networks. Search their database for angel investors, and you’ll quickly discover helpful insights like investment activity, portfolio companies, recent news, and more.
FundingPost’s mission is to introduce entrepreneurs to interested VCs and angel investors through round table events, their Venture Guide magazine and publications, and their online Venture Exchange. For 19 years, FundingPost has facilitated unique and powerful connections between startup companies and over 8,000 dedicated investors.
Over one million angel investors are paying it forward through WeFunder’s equity crowdfunding platform. Since 2012, WeFunder has connected 1,713 founders with $370 million in investment money. Those startups have gone on to raise another $5+ billion after WeFunder.
Like WeFunder, SeedInvest is an equity crowdfunding platform that opens the door to anyone looking to invest and simplifies the fundraising process for startups. Over 575,000 SeedInvest members have successfully funded over 250 companies. Startups are thoroughly vetted by the SeedInvest team, and angel investors are offered the opportunity to build a diversified startup portfolio with a minimum investment of $500.
What are Angel Investors Looking For? How to Attract Funding Angels
Your company’s ability to appeal to interested angel investors comes down to three main factors:
- The angel’s core values/interests
- Proving that customers want a product or service like yours
- Developing a solid business plan
Compelling angel investors to go beyond the pitch meeting and write you a check takes more than just a killer slide deck.
Here are some examples of things that are important to angel investors and what you can do to address those needs:
Let’s dive deeper into what angel investors are looking for.
Proving user and market demand
Beyond the one-in-a-lifetime moonshot idea, startups need to be able to prove user demand for their product.
While your great idea may feel game-changing to you, you must prove to investors that there are many more people out there seeking your product or service. In addition, you’ll want to show that people are willing to pay for it, and that you can make a viable amount of your product available to demanding consumers.
Here are some tips for how to prove user demand for your product or service:
- Alpha/beta testing – If you have created an MVP (minimum viable product), get it in front of alpha testers from your internal network and then beta testers from the wider public to offer you user feedback. While you can advertise on Google and social media platforms to find test users, platforms like BetaTesting.com and UserTesting.com also allow you to recruit testers from your target audience and hear directly from them about your product and their experience.
- User surveys – Online tools like Hubspot’s free online form builder, Google Forms, SurveyMonkey, and TypeForm enable any business, large or small, to create frictionless surveys and forms for users and customers to complete. Capture valuable feedback around market demand, potential price points people are willing to pay, and more.
- Focus groups/interviews – Few things offer deep insight into user behavior and market demand like one-to-one conversations. Focus groups and interviews with your target user base are more accessible than ever today with the use of video communications platforms like Zoom, Google Meet, and Skype.
- Competitive analysis – A great way to prove user demand is to look at the success of your potential competitors. If you offer a similar product or service to another company, an analysis of their operations and offerings can help you identify your competitive advantage and make your company more attractive to investors.
Leverage tools like BrandWatch and Pi Datametrics and market reports from leading firms like Forrester Research, Gartner, and IDC to dive into industry trends, competitor benchmarks, intelligent user insights, and more.
SEO and keyword analysis tools can also shed light on how many people are actively searching for your product or service online and what terms people are searching to find your competitors. Check out startup favorites like SEMRush, Spyfu, Ahrefs, Moz, and Google Keyword Planner to get started.
A Strong Business Plan
“The world has way too many people who want to be ‘thought leaders’ or ‘visionaries’ without actually rolling up their sleeves and doing work…I would always rather invest in someone who has actually dug their hands in and done real work versus someone who talks a big game and has a nice Rolodex.”– John Ramey, Founder of The Prepared | Angel Investor | Startup Coach | Innovation Advisor to the Obama White House
When it comes to the business plan, angel investors want to see that you are serious, committed and capable. They want proof that you have rolled up your sleeves and dug into the details of your business.
The most effective way to demonstrate to angel investors that your business has real value and potential to turn a profit is by drafting a comprehensive business plan.
At a minimum, a business plan should describe financial projections, management, a marketing strategy, details about your target market, how you plan to acquire customers, and how you will scale and grow your business over time.
Creating a Business Plan For Angel Investors
All business plans follow a similar outline, helping tell your startup story while also illustrating why it’s the right time to invest and how investors will make money.
Components of a Business plan
Here are 10 Key Components to a Business Plan:
- Executive Summary – This one-page document gives investors an at-a-glance view of the market opportunity, your product, traction, and next steps. You can highlight your business structure and investment opportunities on the Executive Summary and tease more exciting details in a more extensive business plan.
- Company Overview – This section of your business plan should answer two questions, “what problem are you solving for users/customers?” and “what is your elegant solution to that problem?” Readers should leave the company overview writeup with a crystal-clear understanding of why your startup exists, what you do, and how you do it.
- Market Synopsis – The market synopsis is your opportunity to highlight essential research that captures industry size, growth rate, trends, and overall outlook of the vertical your startup will thrive in. This is where investors will get excited about the market prospects and your company’s ability to grab a sizeable share of the market.
- Product – Share the ins and outs of how your product or service works, shining a light on key features and user experience. Communicate how your product will deliver value to users.
- Revenue model – Describe the plan for how your startup will make money. This framework should share your overall business model, pricing and give real numbers around what types of revenue and how much each will generate, e.g., service fees, product sales, advertising sales, license fees, etc.
- Competitor analysis – Identify direct and indirect competitors that exist or may soon exist in a visual analysis. Detail their chief strengths and biggest weaknesses and take the opportunity to highlight your competitive advantage.
- User/customer definition – Paint the portrait of your ideal user, who they are, what they do, how they behave, and what makes them a valuable paying customer. Explain which customer segments your company is targeting and how they uniquely benefit from your product.
- Customer acquisition plan – Use this section to share how you will market your product or service and acquire paying customers. What tactics and strategies will you use – social media? Ad networks? Content marketing? Influencer marketing? Detail relevant costs for each channel and share calculations around estimated customer acquisition costs (CAC).
- Management team – Display pictures and brief bios of your management team, highlighting career successes, relevant experience, and a well-rounded view of the skillsets and backgrounds that will help your company succeed
- Funding opportunities – Get right to the point with how much money your company is looking to raise, how your team will allocate the capital, what growth milestones the investment will help you reach, and what the angel investor can expect to receive in return. You may also dive more in-depth into the financial picture (cash flow analysis, liabilities, balance sheets, etc.)
Business Plan Templates
Translating your business idea into a full-fledged written plan takes hard work, thoughtful strategizing, and attention to detail.
It helps to start with a template that you can leverage. Look for templates that relate most closely to your business vision and model.
Check out these business plan templates for a jumping-off point:
- 11 sample business plans from Hubspot
- Startup business plan from Gusto
- Traditional and lean business plan templates from the U.S. Small Business Administration
- A comprehensive guide to writing a business plan from Startups.com
Getting Help with Creating a Business Plan
Business Plans can be daunting and time-consuming — particularly for first timers. If you find yourself struggling, it might not be a bad idea to get some help.
Soliciting the help of a professional who has extensive experience with drafting business plans can help you raise money faster and more effectively. There are many services that can work with you to validate your idea, gather the data you need, and present your business model in a clear and compelling way to angel investors.
These types of business plan consulting providers specialize in helping businesses to write, edit, and refine their business plans.
Before settling on a professional business plan writer, do some homework. Make sure they have a strong track record and go through samples of their work. Scan their testimonials and have an introductory call before engaging them to help you.
Also, look for business plan writers that are familiar with your industry and have created business plans that are similar in nature to yours.
Here are examples of professional business plan writing services that have strong reviews:
Pro Business Plans — Pro Business Plans has a diverse team of experts (mostly from Big Four accounting firms) that specialize in providing highly personalized business plans. The team has strong experience working in venture capital and with investment banks. They collaborate across all business functions including marketing, research, finance, and writing. You will be assigned a business plan writer to assist with your plan prior to ordering so you will know who you will be working with.
Growthink — Since 1999, Growthink has created thousands of business plans and strategic plans for clients. Growthink’s business planning team has academic, entrepreneurial, and financial backgrounds, including experience starting, financing, and growing businesses and working as angel investors. They focus on working closely with you to understand and improve your business model, target market, plans for securing funding and increasing sales.
OGS Capital — OGS business plans have helped 5,000+ clients attract more than $2.7bln in financing. Their team consists of MBA fellows from TOP10 schools. They work to emphasize your business idea’s unique advantages and attractiveness for angel investors, highlighting the market potential, investment returns, and competitiveness of your value proposition. Each document is prepared from scratch, with design that utilizes graphics, tables, pie charts and illustrations
TAKEAWAY: What to know about Angel Investing & How to Attract Funding Angels
Angel investments pose an exciting opportunity for young businesses to acquire funding and get support from experienced advisors. In the modern tech-driven world, finding, pitching, and following up with angel investors has never been easier.
If you believe in your startup idea, it’s absolutely worth reaching out to Angel Investors and asking for funding. Remember, in addition to making money, angels are interested in funding startups because they enjoy supporting smart teams developing great products.
Angels can write checks and also serve as mentors, advisors, and thought partners. There might be someone out there who is waiting for a start-up just like yours to invest in, so get out there and find your angel!
Did you enjoy our guide on “What to know about Angel Investors“? If so, don’t miss these interviews with some of our featured angel investors, startup mentors, and funding experts:
- Tim Draper – Renowned American venture capital investor and founder of Draper University
- Ryan Feit – CEO and Co-Founder of SeedInvest
- Karen Cahn – Founder & CEO of IFundWomen
- Jonathan Medved – Founder & CEO of OurCrowd | Leading High-tech Venture Capitalist
- John Ramey – Angel Investor | Leading Startup Coach
- Fran Hauser – Leading Startup Investor and Advisor
- Uri Adoni – Venture Capitalist | Angel Investor | Former CEO of MSN Israel (Microsoft Networks)
LEARN MORE: 3 Top Rated Books on How to Attract Funding Angels
The following are some popular books written for entrepreneurs looking to attract angel investors and learn more about angel investing as a whole, including what angel investors are looking for in a startup
What Every Angel Investor Wants You to Know: An Insider Reveals How to Get Smart Funding for Your Billion Dollar Idea
WHAT IF YOU HAD AN ANGEL ON YOUR SIDE? – When you connect with the right angel investor, it’s like finding a new best friend–you just have to know what makes him or her happy: Smart funding is waiting for smart founders. Raising funds is all about connecting with the investor who’s right for you–and What Every Angel Investor Wants You to Know shows you exactly how to succeed. As chairman of the board of directors of the New York Angels, Brian Cohen is one of the most engaged angel investors out there today. The first investor in Pinterest, he describes exactly what angels want to see, hear, and feel before they take out their checkbooks… Read more
Investor Ready: The guide for start-ups on getting investors to say YES
IS YOUR COMPANY ‘INVESTOR READY’? – Getting investment is tough. Competition is fierce. There are new start-ups around every corner fighting for their slice of the pie. In this book, Julie Barber shares her proven six-step process to showcase your company at its best and wow your potential investors. The six Investor Ready steps outlined in this book will enable you to: 1. Communicate your company Vision to investors; 2. Ensure the Structure and Scalability of your start-up supports your Vision; 3. Prove your Market fit and impact; 4. Provide business Numbers that give investors confidence; 5. Build your ideal Investor Profile and find investors who match it; 6. Create a Pitch and Business Plan that will wow potential investors… Read more
Call a Business Angel: Practical funding and commercial advice for start-ups, SMEs and innovators
Call a Business Angel provides a commonsense approach to complex start-up and SME business issues – Many businesses fail not because of a poor idea but because of poor analysis and execution. In this practical guide, Dr Eileen Doyle provides proven insights and the quality basics of how to analyse ideas and turn them into sustained business success. It is the must-have ‘how to’ book for start-ups and SMEs, written by one of Australia’s leading commercialization experts. Dr Eileen Doyle has had an extensive career in large corporations that has spanned more than three decades. She has a PhD in Mathematics and Statistics and started her career in a technical role in industry… Read more
FAQ CHEAT SHEET: Angel Investing & How to Attract Funding Angels
Here is a convenient summary of key points to remember when it comes to leveraging angel investors to move your business forward.