Angel investors are one of the many options to fund new businesses. Securing angel investment can be a lengthy process, but finding the right one can really help get your business off the ground.
In this article we’ll be covering the main things you need to know about angel investors, including how it works and where to find them.
What is an angel investor?
An angel investor is someone who provides financial support to startups in exchange for a small stake in the business. This means they own a percentage of the company’s shares. They tend to either be successful entrepreneurs or have a lot of experience within the business world.
Their support isn’t just monetal, though. As experts within the business realm, angel investors often provide mentoring, support and access to their network to aid the startups they work with.
The relationship between investor and startup tends to last at least several years, so it’s important that you find the right one. You’ll need to consider their background and ethos and whether it aligns with your business. If it’s a good fit, then they’ll provide maximum benefit to you, and vice-versa.
To learn more about finding and securing the right investor for you, check out our article on getting your startup ready for seed investment.
How does angel investment work?
Funding from angel investors can work in several ways. For instance, investors may provide either a one-time investment or a steady cash flow for a longer period of time. In return, the angel investor will get a share in the business – think Dragons’ Den.
In order to secure angel investment, you’ll need to regularly pitch your idea to investors. Unfortunately, you should expect to hear a lot of “nos” before closing your first investment round.
“We spoke to angels for about six months, maybe 30 or 40 of them,” said Tersha Willis, founder of Terrible and The Pitch 2020 winner. “We eventually found people that were really fascinated with what we were doing and really interested in us and kind of just believed in us as humans.”
For some tips on delivering the perfect pitch, check out our article on how to prepare a pitch for angel investors.
Other methods of securing investment for your startup include crowdfunding, government support, bootstrapping or entering startup competitions.
What do angel investors look for?
In short, angel investors want to know that they will get a return on their investment: you’re selling them shares in your company and they want to sell them for a larger amount of money further down the line.
Therefore, it’s important to prove to them that your business has a lot of potential. You can do this by demonstrating traction, which if you’re pre-revenue can include social media followings or a successful demo.
It’s also important to get them excited about your business idea. Investors want to see startups with a clear purpose behind the business, often ones that tackle a social problem.
“The most important things are purpose, passion and perseverance. And I guess a final bit of polish on there, to show that you’ve really thought about it and you really care. After that all you have is a leap of faith,” says Simon Squibb, angel investor and The Purposeful Project founder.
Angel investors often have specific causes they’re interested in. They may want to help people develop new technology in a sector they love or support people tackling a particular societal issue, like mental health.
When you’re looking for investors it’s important to understand their motivations, so you can work out the most relevant people to approach. Look at what they talk about on social media and at events for clues.
What’s the difference between angel investors and venture capitalists?
The main difference between angel investors and venture capitalists (VCs) is the source of funding. Angel investors will typically use money from their own pocket, while venture capitalists use a pool of money from many other investors on behalf of their company.
VCs and angel investors also vary in the amount they invest and when. Whereas angel investors will invest a smaller amount of money at a startups early-stage, VCs tend to invest in a company at a slightly later stage and with a higher sum.
You might expect an angel to invest between £10,000 and £300,000, although there are exceptions. This means they’re largely involved in seed rounds. Remember, they’re investing their own money and will likely want to spread their cash between several different types of investment, so individual amounts won’t be that large.
Finding an angel investor
If you’re looking for angel investors, one of the best ways to find them is through a pitching competition, such as The Pitch. Whether they’re on the judging panel or a member of the audience, investors will often attend competitions to discover startups whilst they’re still in their early and exciting stages.
Every year The Pitch gets a series of successful entrepreneurs and investors to join the judging panels for our competitions, and many of them have gone on to personally support our finalists.
For instance, Crowdcube co-founder Darren Westlake personally invested in one of our finalists from The Pitch 2021, YesRef. You can find out more about our previous judges and finalists here.
Other places you can find angel investors include:
- Lists on Twitter
- Online investor communities such as The UK Angel Investment Network.
- UKBAA and Beauhurst
- Local media
Another tactic is to look at who has invested in similar businesses. An angel investor likely won’t want to back two competing businesses, but may make several investments in the same sector or type of technology.
Use Crunchbase and other news sources to find similar businesses who have raised seed funding. From there you can find the angels involved by checking their investments on LinkedIn or looking at the shareholders on Companies House.
How to approach an angel investor
When approaching an angel investor, you want to keep your message short and sweet. Considering the sheer number of emails they get a day, you will need to impress them quickly in order to make any lasting impact.
When communicating with an investor, make sure you:
- Try and keep it under 200 words
- Attach or link to your pitch deck
- Are clear about what you’re asking from them – how much do you want to raise?
- Avoid jargon and complex vocabulary
- Explain the problem and solution
- Explain why they’re a great investor for you
- Tailor the message to each investor – you don’t want something that sounds too generic
Is your startup ready for angel investment?
If securing angel investment seems like the next step for your business, you need to make sure that you’ve got everything in line ready for your potential investor.
Every year, The Pitch helps hundreds of startups get investment ready. Register here to get all our latest news and advice, and to find out when we open for applications.