Angel investors are a significant part of the startup ecosystem. If you are an aspiring entrepreneur or founder of a young startup you may be thinking about fundraising with angel investors. Here’s what you need to know…

Angels are a key element and building block in starting fundraising. They can be one of the most critical sources of funding for startups. Before you rush out there with your new pitch deck to try and present to them, make sure you understand how they fit, what drives them, and what’s next.

What Are Angel Investors?

Angels are investors who invest in startup companies as capital partners. The term refers to individuals who participate in funding new companies and business ideas. However, we have also seen a substantial rise in the number of angel groups. These are groups of angel investors who all invest together for efficiency, impact and lower risk.

If your startup needs any funding at all, then angels are going to be an essential part of this. Make sure you’ve got a handle on them before you try putting a business plan in front of them.

Angel Investors: Where They Fit In

If this is your first time raising money for a startup, then it is important to know that you don’t just land all of the money you need in one lump sum.

Even the tens and hundreds of millions you hear about others raising in the news and on tech blogs are just temporary financing to get through the next few months ahead. So, this is a critical step for your success. Everything may be riding on it. Yet, to put it in perspective, it won’t be your last round.

Angel investors are early-stage investors. They will be among your first investors. They may be participating in your friends and family round. They might be your friends and family. Or they’ll come in just after that to provide a bridge to your next early rounds. This is partially due to their appetite for investments, level of sophistication and desire for returns, what drives them and their check sizes. 

Angels may participate from the seed stage to Series B of your business funding rounds, though they may already be effectively priced out by your Series A due to the amount of money you are raising at that time.

Who Are Angel Investors

In many cases, you might feel like they are actually angels. Especially with the passion you have for your project at this point, and after spending months shopping for funding. 

These individuals may include:

  • Personal contacts, friends, family and their friends
  • Cofounders and silent business partners
  • Former entrepreneurs and founder of new startup accelerators
  • Entrepreneurs with recent successful exits
  • Previous bosses and investment partners from venture funds
  • Celebrity entrepreneurs like Mark Cuban
  • Regular individuals with significant amounts of capital to invest

Most often, when entrepreneurs are seeking angel funding they are looking to accredited investors. These are high-income earners and those with a high personal net worth. It’s worth pointing out that there is a lot of competition for their attention and money. Billions are being spent on marketing to them to capture their capital every year.

You may also raise from individuals who are not accredited investors if you are raising through crowdfunding portals and certain SEC regulatory filings.

Why Do They Do It?

Understanding your prospective investors is just as important as deeply understanding your customers. Probably even more so. As if you don’t connect perfectly with your angels, you may never make it to the stage of gaining customers.

Angels can be driven to invest in this way for a variety of reasons, including:

  • It’s trendy
  • They want to look smart and get bragging rights
  • It can offer very high returns
  • It’s fun and exciting
  • They really want to help you
  • They believe in the mission and want to help in any way they can
  • This is a staple part of their investment portfolio
  • They are trying to give back after having a successful raise for and exited a startup themselves

What Do They Want? 

Put simply, they want to look and feel smart, feel like they are making a difference, have the opportunity to generate great investment returns and be able to rationalize why they aren’t going to lose this money they invest with you.

Some angels are very business savvy and experienced in the startup world. Others aren’t and are just dipping their toes in now.

Being very early days for your startup the number one deciding factor on whether to invest or not is you. Do they like you, want to help you, are inspired by you, and believe you can do this and will stick it out?

The business idea is secondary to this. Yet, it also has to make sense. Are you demonstrating that you’ve really thought it through, know how it could fail, know your competition and have differentiation and a competitive advantage?

Is this a really big market that has the potential to 10x or 100x their investment? 

Are you coachable and willing to learn and hire the best team and M&A advisors to see this thing through?

What’s Next, After Your Angel Round?

Almost as soon as you are closing your angel investment round, you need to be back out there preparing and raising for your next round. 

You also have to keep the business growing and show great use of these funds, and that you are gaining customers and results. Though at least half of your time is probably going to be spent on raising the next round. You need a new pitch deck and pitch, you need to be asking for introductions, be networking and setting the stage for the ask. You might find this a critical time to hire a fundraising coach to get you to this next level.

Remember that storytelling plays a key role in fundraising. This is being able to capture the essence of the business in 15 to 20 slides. For a winning deck, take a look at the pitch deck 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.


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