Tips for successfully obtaining angel investment
Phil Mitchell presents advice for giving yourself the best chance of picking up equity investment from a business angel.
There is no secret to obtaining angel investment funding. It is a case of making ‘you’ (after all you come with the deal) and your business as attractive as possible to your potential investors. This means explaining your company’s proposition and the potential return on investment clearly and succinctly so that your target investors understand your offer and find it attractive. You may think you have an amazing idea, but unless you can present it well others may not take the same view.
The majority of angel investors are not uber-rich people who do not care whether they lose their money; many are simply trying to get the best return with their hard-earned savings. With that in mind, they don’t just buy an idea; they need to see a good idea that is well packaged and that is a less risky investment. Some angels will be passive investors, which may suit you, but those that bring additional skills can sometimes outweigh the investment benefits. An investor who was previously successful in your sector (been there and done it) can often bring far more in term of experience, contacts and general business acumen.
An angel investor is using their personal money and taking a risk by investing into your business. So in the short space of time you have, you need to impress on them how good your product or service is, how impressive you are, that you have a market which can generate a profit and that the risk they would be taking is minimised.
We have 15 points which will help you to be successful in your quest for investment. You are unlikely to meet all of them, but hitting as many as possible will help your cause. Many of these points will already be familiar to those who have watched investors pitching with varying degrees of success on programmes such as Dragons’ Den, and being grilled about everything from financial projections to marketing. However, watching others squirm and thinking ‘of course I’ve researched my potential market size’, is one thing; actually being in front of potential investors and presenting a coherent, convincing story is another!
We have grouped the fifteen points into four areas: you as the business founder/owner, finance, marketing and exiting the business. The points apply equally to written and personal presentations. Remember, business angels see numerous propositions and therefore it is about making yours stand out and capturing their attention. No one is going to read a 30-page business plan with detailed financial forecasts. These comes later once you have their attention!
1. A driven and visionary founder.
2. Founder’s cash already invested in the business.
3. Professionally networked with good connections for generating future business.
The starting place for any investors are the idea and the individual. Angels will be attracted by someone who can explain clearly the idea behind their business and their vision for taking it forward (this means they can sell it). Not everyone is going to have the comprehensive vision, drive and single-minded ambition of Steve Jobs, nor the extrovert style of Richard Branson, but you will impress potential investors by explaining in your own style the potential for your business to grow in an exciting yet realistic way. They will also be impressed with personal commitment by putting your own money into the business, as well as the many hours, which you have no doubt invested.
If you don’t have one already, start to develop a good network of connections who will help drive your business (and will also help in finding funding). Showing that you have a good network of connections indicates that you are serious about taking the business forward and possible routes to market.
4. A business plan for investors, written as a concise information memorandum.
5. An accounting system producing management accounts.
6. Professional advisers already engaged.
7. Three year financials, including P&L, balance sheet and cash flow forecast.
8. A realistic sales forecasting system.
9. The first order delivered and paid for.
10. Product design protected and intellectual property protection underway.
Potential investors need to be convinced that their money will be valued and treated with respect. They will be looking to understand where the sales are going to come from. Can the idea be copied and is there any way that it can be protected? Do you have the systems in place for the growth you hope to achieve on the basis of their investment?
11. Clear brand identity, including a website that is fit for purpose.
12. Testimonials from existing and prospective customers.
13. Evidence of social capital and associated media reviews
14. A bridgehead marketing plan for key export territories/new market sectors.
Marketing may be an area that you are looking for the funding to cover. Generally most people seeking funding have a product or service and are looking for assistance in getting it to market. Although you may not be a marketing expert, do provide details of the actions you have taken to date, try and gain some profile around the business via social media, trade press etc. and at least have an outline marketing plan.
15. Have an exit strategy.
The investor wants to know how they are going to get their investment back (hopefully with some profit), commonly referred to as an ‘exit strategy’. Are there competitors who are likely to buy you out or another business which your company would complement?
Although it may seem that you are doing all the work, making your business as attractive as possible will help you get the best deal as regards the level of equity you give away (although be realistic) and give you a greater chance of attracting an angel who brings more than just cash to the business.
An investor is giving up their personal funds and taking a risk; therefore, in the short space of time you have to impress them with how good the product/service is, how good you are and that the risk is minimal. Whether it is in writing or presenting in person, aim for as many as the above points as possible and you should be successful.
Phil Mitchell is co-founder of Harbour Key.