Financing a company has long been the drain of a CEO’s time and resources. Many great business ideas fall by the wayside because the owners can’t find or convince others to invest in their idea. As post recession hit Britain crawls back to prosperity the banks are being more frugal with their lending so where can entrepreneurs turn to find finance?
The aptly named angel investor is a private individual or collection of individuals that offer capital and advice in return for a percentage of the venture. An investor is usually a retired or non-active entrepreneur themselves and understands the fundamentals of running a business, this makes them an ideal partner for offering advice and guidance.
The term first arose in the USA during the late 1970’s to describe the people that provided capital to support firms. Most angel investors reinvest in a similar industry to the one they made their fortune from. Companies such as Facebook and Google received angel investment early on in their foundation.
Related article: How to get business finance without using a bank
Traditionally investors would be found via networking or referral from an acquaintance but now entrepreneurs have the internet. Investors and businesses can now be brought together on online platforms such as the Angel Investment Network and Angels Den both tools are useful in terms of bridge the gap to investors.
Investors may still prefer to be introduced to businesses through traditional sources however the evidence suggests that they are becoming increasingly open to the benefits of connecting through online platforms. Depending on which route the entrepreneurs take to find an investor, the fundamentals are all the same. It’s important to have in place a bulletproof understanding of the business, a snappy pitch, a clear review of the competition and a defined plan on moving forward.
It’s important to note that angels invest in two components of a business, the idea and the people. If there are any doubts over either one of these elements then business owners must be prepared to fight tooth and nail to convince investors otherwise.
It’s often said a good pitch is concise, specific and honest but above all, captivating. Why use endless PowerPoint slides when a 60 second video would be more effective? The idea of the pitch is to immerse the investor in the vision of the pitcher and show them the potential that their capital could unlock in the business.
Thinking outside the box can be something that places an idea ahead of the competition, inventive entrepreneurs can display their creativity in their pitch by defying the norms of the slide/talk presentation. A great example of a creative pitch comes from a young filmmaker trying to find funding for a documentary on coffee bean plantations in Ethiopia. He was due to pitch to a panel of investors, before the pitch he visited the room in which it would take place and made multiple cups of coffee to place around the room, he hung pictures of coffee beans on the wall, placed a yucca tree next to each seat and played a soft Ethiopian tribal song. During his pitch he never referenced the items around the room, their purpose was to turn a drab conference room in central London into the heart of an Ethiopian plantation. Combining sound, smell and vision to convey the emotions and style of the film helped win the filmmaker his funds.
Once a pitch is over there is a lengthily Q&A session where the pitcher will be grilled about the fundamentals of their business. It is vital that any information is a true reflection of fact or prediction as any investment agreement should be based on honesty. It’s important to remember that angel investors are not just looking to invest their money, often they want to offer their expertise, contacts or ideas, therefore its possible for pitchers to point out their own shortcomings and how the angel can help them.
Even the best business ideas will be turned down. It’s vital for any successful entrepreneur to accept rejection as part of the game, one such visionary was rejected 45 times before securing an investment.
Just because an angel investor says yes, doesn’t mean you should take it. Due diligence is a big part of securing capital from angels and any business owner worth their weight will know it is a two way street.
Most angels will have a portfolio by which prospective entrepreneurs can find references of previously invested companies. Motivations for wealthy individuals to become investors can vary but very few successful angels are only in it for the money. The best investors offer the best guidance, or rather the best guidance makes the best investor. It’s important for those looking for investment to do their research into who they are receiving money from and whether they are going to be a good fit to take the company forward.
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