Winning Angel Investment
Phil Mitchell, Director, Harbour Key Limited
Anyone who’s watched Dragons’ Den over recent weeks will be familiar with the challenges of pitching for angel investment. What appear to be solid business plans can quickly crumble under questioning from experienced investors, while a response that hasn’t been thought through carefully can have unintended consequences.
However, obtaining angel investment is not as difficult as the programme might suggest, and by understanding the basic principles you can significantly increase your chances of success. We’ve helped many organisations obtain investment, including one which was offered finance in the Den, and our experience can be distilled into a few key points to help others in their quest for finance.
The first step is to understand what you are trying to achieve. Obtaining angel investment is primarily about making ‘you’ (because 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 in the short amount of time you have so that your target investors understand your offer and find it attractive. You may think you have an amazing idea, but unless you can explain 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 to investors is minimised, you are unlikely to be successful.
It is important to understand that an angel investor is using their personal money and taking a risk by investing in your business. The majority are not uber-rich people who do not care whether they lose their money; many are simply trying to get the best return on their hard-earned savings. They need to see a good idea that is well packaged and with a level of risk that is acceptable to them. Some will be passive investors, which you may prefer, but others bring additional skills that can be even more important that the actual investment. An investor who has been successful in your sector can often bring valuable experience and contacts as well as general business acumen.
Having understood your audience, the following points will help you to be successful. You are unlikely to meet all of them, but hitting as many as possible will help your cause. They apply equally to both written and personal presentations. Remember, business angels see many propositions, so you need to make yours stand out. No-one is going to read a 30 page business plan with detailed financial forecasts. This comes later once you have their attention!
Begin with yourself
Angels will be attracted by someone who can clearly explain the idea behind their business and their vision for taking it forward. Not everyone can be a Steve Jobs or a Richard Branson, but potential investors will be impressed if you can explain in your own style and an exciting yet realistic way the potential for your business to grow. They will also be impressed if you can demonstrate personal commitment by having put your own money into the venture, and by the many hours which you have no doubt invested in developing your business.
If you don’t already have one, start to develop a good network of connections who will help drive your business forward. Demonstrating this indicates that you are serious about taking the business forward and developing potential routes to market.
Prepare the financials thoroughly
Potential investors need to be convinced that their money will be valued and treated with respect, and will want to understand where the sales are going to come from. This requires a concise business plan, an accounting system producing management accounts, and three year financials including P&L, balance sheet and cash-flow forecast. Ideally you will also have professional advisers engaged, a realistic sales forecasting system and the first order delivered and paid for.
You also need to answer questions about whether your idea can be copied or protected. Do you have the product design protected and intellectual property protection under way? And do you have systems in place for the growth you hope to achieve as a result of the angel investment?
Explain your marketing
Many people seeking funding have developed 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. Ideally you will have a clear brand identity, including a website that is fit for purpose, plus testimonials from existing and prospective customers and an outline marketing plan. Try and gain profile for the business via social media, trade press etc. and if possible have a bridgehead marketing plan for key export territories and/or new market sectors.
Have a clear exit strategy for investors
The investor wants to know how they are going to get their investment back – hopefully with some profit. This is 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 not only help you win investment. It will help you obtain the best deal regarding 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, so you have to impress them with how good your product or service is, how impressive you are and that the risk is minimal. Whether you do this in writing or by presenting in person, aim for as many as the above points as possible and you should be successful.
08 September 2015
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