Angel Investor Funding For Startups: Everything You Need To Know

Are you exploring how to get angel investor funding for startups?

Find out how angel investors fit into the funding stack, the real pros and cons of using them, and how to get them to pledge their capital to your venture.

Angel investing is now as well known as venture capital funding for finding the financial fuel for startup entrepreneurs. Yet, many don’t get exactly where they fit, and what they need to land the money. Nor their alternative options if they just keep striking out and can’t wait any longer.

Startup Fundraising 101

All businesses need money. Startup ventures need money to get off. They need ongoing injections of capital and access to cash to keep on growing. Today, that seems like a virtually indefinite need. It is not about just ‘getting funded’ and then being set once and for all.

You may be surprised at the financial needs of companies that are even bringing in billions of dollars each year.

Today it is not uncommon to see startups raise all the way through a Series F round before going public. This is important to know if you are just starting out, and are strategizing your fundraising. We are also seeing larger and larger rounds of money being raised.

Even despite global crises like COVID. More experienced serial entrepreneurs seem to be weighing their raises with larger initial rounds, even before getting started. While others are pushing off accepting outside money as long as possible in order to avoid dilution and the loss of control.

Still, a lack of money, and poor money management remain the top reasons that businesses fail. Don’t let that happen to your venture.

While you can bootstrap and run a lean startup, there are many things you will need money for. Including domain names, hosting, communications, recruiting, insurance, legal help, travel, coffee, marketing, tax prep, and even fundraising activities.

Angel Investors

Angel investors offer a specific form of funding. Different from what is typically provided by startup accelerators, private equity firms, venture capital funds, and so on.

Traditionally, angel investors are individuals. They have widely varying degrees of wealth and investable capital. Friends and family members may even fall into this category. Others are amateur investors just looking to diversify their investment portfolios and gain more control over their financial destiny while trying to do something meaningful with their money.

Then there are professional angel investors who spend much of their time doing this. Many are even former entrepreneurs who have had successful exits of their own.

This is in addition to today’s famous celebrity angel investors. Like those we’ve seen on TV shows like Shark Tank.

There are also a growing number of angel groups. These are communities of individual angel investors who have banded together. They benefit from deal flow, and more hands and eyes to find potential investments, and vet them. By investing together, they can make more meaningful investments, with more influence on the outcome. While also driving better terms, and reducing their individual risk and exposure to individual investments. Which in turn allows them to further diversify. So, take the time to explore how angel investor funding for startups works.

Keep in mind that in fundraising, storytelling is everything. In this regard for a winning pitch deck to help you here, take a look at the template created by Silicon Valley legend, Peter Thiel (see it here) that I recently covered. Thiel was the first angel investor in Facebook with a $500K check that turned into more than $1 billion in cash.

Remember to unlock the pitch deck template that is being used by founders around the world to raise millions below.

Where Angel Investors Fit In The Capital Stack

Where do angel investors fit into your fundraising and financial needs as a startup?

Friends & Family

Many highly successful startups and companies have begun with small loans of $10,000 or less from friends, family members, and other close connections. Aunts, uncles, professors, family members of your classmates, and even bosses can all be sources of capital at this stage. Some may be actual angel investors. Many will just provide casual capital. Either as a personal loan or gift.

Your cofounders may also fall into this category. If you can bring together several cofounders with their own capital, in addition to talent, you may find you are off to a great headstart.

Angel Investors

Angel investors are often the next stop after informal friends and family funding. This often comes into play around your official seed round. These are usually modest checks that you’ll pull together to really get going.

Startup Accelerators

Startup accelerators often come into play around this stage. These programs may provide somewhere in the range of $10,000 to $120,000. As well as guidance and a well-structured, fast-paced program that helps you get to the next stage where more investors may be willing to put up larger sums of funding.

Venture Capital Firms

VCs may be the most famous source of capital in the startup world. These are larger firms, whose business is to invest in startups for a profit. This is where you’ll begin getting into the tens and hundreds of millions of dollars range of funding.

VC funds have been breaking out of their old mold to fund startups earlier and later than they used to. As well as to provide funding further afield than just in Silicon Valley or New York City.

Private Equity & Corporate

These sources of funds often come into play in later stages. Often looking more closely at the financials and fit of a company than the growth and traction prized by VCs. This capital is often a precursor to an acquisition.

Another way to look at this is through the lens of the different rounds you will likely go through.

• Pre-Seed Round
• Seed Round
• Series A
• Series B
• Series C Through F

After this companies will typically either go public or be acquired.

In between these rounds, there may be ‘extension’ rounds to enable startups to get to the next major milestones. Figure out how to target angel investor funding for startups at this time.

How To Pitch Angel Investors To Fund Your Startup

If angel investors are right for your startup, how do you get them to invest with you?

The first step is to understand what they want, and what is important to them. Followed by curating a list of targeted angel investor prospects, and then connecting and pitching them.

What Angel Investors Want

The key elements you can expect to be evaluated by angels include:

• How you tell a compelling story about your startup, the mission, vision, and their participation
• The strength, experience, tenacity, and charisma of your founding team
• Having a clear problem that you can convey simply
• Being in a really big market, that will facilitate a big business and substantial growth
• A clear competitive advantage

Pitching Materials

You will need a great verbal pitch, visual pitch deck, and supporting materials in your virtual data room.

The keys to a successful pitch deck include:

• Following the expected flow of slides
• A clean and concise deck of around 10 slides
• Accomplishing the right blend of substance and selling
• Easily shared, presented, and actionable

Building Relationships

Convincing angel investors to fund you is a lot like every other type of sale. It will require you to get them to know, like, and trust you.

This can certainly take time and multiple contacts. There is a lot you can do to position yourself and your startup in advance. Though this is still greatly about the connection between humans. The math typically comes in a distant second to that. So, work out how to build connections to acquire angel investor funding for startups.

Before you tap into this source of funding for your venture, take the time to understand how angel investors and angel groups work. Check out this video I have created explaining in detail how it’s done. You’re sure to find it helpful.

Pros & Cons Of Using Angel Investors To Fund Your Startup

As with everything in life and business, there can be both pros and cons to incorporating angel investors into your fundraising. Here are just some of them.

‘Party Rounds’

The term ‘party round’ typically refers to bringing in a large number of investors. At $50,000 each, you’d need 40 different investors to fill a $2M seed round.

This is not only a lot of work, and then a lot of parties to manage for the future, it also means that they are not heavily invested. They don’t have a whole lot hanging in the balance. They may not have the experience and connections to really add a ton of extra value.

Compare this to raising everything from one VC, who can plug you into everything you need.

Amount Of Capital

Angel investors are limited on funds. Even the wealthiest individuals are unlikely to commit many millions of dollars of their own money to one venture. So, there is a lot more work involved for each dollar. The check size is capped.

That also rolls forward to future rounds. Most angels are going to be tapped out, and out of their depth by your Series A. Whereas larger VC firms may be there with you with follow-up rounds several times. Either as that all-important lead investor or at least major participants.

Ease & Speed Of Fundraising

Angels are typically going to be less demanding and less rigorous in their due diligence than institutional investors. This means that they can be much easier and faster to raise from. That can be invaluable in the early stages when you are lean on tangible metrics and are scarce on time.

Credibility

The right angel investors can add great credibility to your startup. It can be a great validation point for other future investors, customers, and partners.

The opposite can also be true. A lot of people on your cap table that is unknown may complicate future rounds and business decisions, without adding any credibility.

Where To Find Angel Investors For Your Funding Needs

There are many places to find angel investors, including:

• Through your friends, family, and work connections
• Professional networking events
• LinkedIn and Twitter
• Applying to competitions
• Crunchbase
• Angel groups
• Introductions from fundraising advisors and consultants

Strategizing Your Angel Round

It is important that you put some thought and strategy into your fundraising. Learn angel investor funding for startups works. You need a long-term game plan, as well as the ability to put the money in the bank you need right now.

Key elements of this include:

• Understanding how much lead time you need in preparing materials and building relationships
• Understanding how long it will take to pitch and put money in the bank
• Choosing the right investors for setting up the next successful funding round
• Ensuring you raise enough financial fuel to get to your next milestones and funding

Alternatives To Angel Investor Funding for Startups

There are alternatives to incorporating angels into your fundraising game plan.

Such as:

• Skipping right to VC funded rounds
• Startup accelerators
• Self-funding the early stages of your startup
• Using credit and debt facilities instead of equity capital
• Crowdfunding from the public
• Customer and partner funding
• Winning grants, awards, and competitions

Summary

Angel investors have become a staple of the startup and fundraising ecosystem. As with all sources of business financing, there are pros and cons of using them to fund your startups.

The right angel investors can be very valuable for kickstarting your venture and fueling it to the next stage, to raise even more funds.

Know what they want, how to pitch them, where they fit in and incorporate them in your fundraising strategy as makes sense for your specific company.

You may find interesting as well our free library of business templates. There you will find every single template you will need when building and scaling your business completely for free. See it here.