Hi! I’m Stephanie Breedlove, Co-Founder of Care.com HomePay, Author and Angel Investor.
I absolutely adore taking an idea and giving it life in the form a business, then leading it to its full potential. Nothing is more fun. (Seriously!) I’d love for every woman who wants to start her own business to say the same thing, so here I am, mentoring millennial entrepreneurs. When I’m not working, I like to recharge and head outdoors to hike, bike, or stand up paddle board!
Is that list of business news and trending articles you’ve tagged still unread? I get it. Allow me to help. Take a couple minutes to read my summary of articles serving the most pertinent, actionable business topics. Or, take 10 minutes to read the full article, and put another brick on the foundation of your growing career.
Who it’s for:
All early-stage founders
Why it’s important:
What exactly is an angel investor and why is it so important to put your best foot forward when pursuing funding from angel investors? Angel investors are an essential source of capital for early-stage companies, and particularly for those founded by women. They are “accredited investors” who have earned an annual salary of at least $200,000 for two years, or they have a net worth of at least $1 million, excluding their home. Less than 2% of those who qualify to be angel investors become angels. That’s right, 2%. Not everyone has an appetite for high-risk, high-return opportunities. Don’t underestimate how important it is to ‘do it right’ if you are fortunate enough to pique the interest of an angel.
The number of female angels has increased fivefold to nearly 100,000 in the last dozen years, and women now comprise approximately 30% of all angel investors. Yet, male founders are still more likely to succeed at raising money from angels (male and female). While we work on improving this, here’s what you can do to help improve your odds.
1. Target the Right Angels. Identifying angels who are suitable for you will increase your chances of success. Do your homework. Angels frequently want to be actively involved in your business, so many invest close to home. While some angels do invest in pre-seed companies, the trend is to de-risk their portfolios by investing in companies that have traction. Know the industry focus and risk level of a potential angel.
2. Make Connections. Investors like to meet founders through referrals of trusted sources, such as founders of portfolio companies or investors. Check out the Angel Capital Association for angel groups in your area and attend trade conferences and alumni investor groups to get to know angels.
3. Have a Clear and Concise Elevator Pitch. Everyone seems to know this, and very few actually accomplish it. Capture the imagination of the listener with your vision for the company.
4. Provide Substance. Whether you are giving a formal presentation or talking casually over coffee, always cover:
- That you are addressing a large market
- That you are solving a major pain-point
- That you know your competition and your competitive advantage
- That you know your customers and how to reach them
- That your team has the full complement of skills to bring your solution to market
5. Substantiate a Solid Return on Investment. Serious angels target a three to four times ROI across their portfolio over a 5 to 7-year timeframe. Be prepared to discuss the assumptions behind your projections.
6. Answer a Prevention Question with a Growth Answer. Yes, answer the question directly. Then quickly add a response that moves you from defense to offense. You will go on to raise 14 times more funding than women who don’t.
7. Chemistry Matters. Angels spend a lot of time with entrepreneurs in the early stages. It’s a little like being married. So, getting along is as crucial as having similar expectations, vision and objectives.
8. Be Coachable. This is a criteria for every investor. You don’t have to take all the advice you’re given, but you do need to listen without being defensive.
9. Be Persistent and Patient. Raising capital is a time-consuming, ego-challenging process. Numerous coffees and pitches are par for the course.
10. Do Due Diligence on Angels. Raising capital is only part of the equation. For the relationship to work, you must also understand investors’ motivations and expectations for exit strategy and ROI, and know what added value they can bring to the table.
Top Take-Away: There aren’t very many angel investors, and even fewer that are the right fit for your company. Be strategic, prepared and smart about getting one. There’s a reason we are called “angels.”
A few more tips on how to raise capital from angels:
How to Raise an Angel Funding Round