How to find angel investors for your start-up business

CEO of the UKBAA, Jenny Tooth OBE is an expert on equity finance. Here, Tooth offers an introductory guide to securing angel investment...

Often the biggest challenge start-ups face is raising money.

How do you raise your first seed round smartly? How do you find the right investor for your business? How do you pitch? What should you focus on before you meet with investors?

To get the answers to all these questions, journalist Triin Linamagi sat down with Jenny Tooth OBE at Startup Grind London. CEO of the UK Business Angels Association, Tooth has over 20 years’ experience in supporting small businesses to access investment, both in the UK and internationally.

Read on for Tooth’s guide to navigating angel investment…

How to find angel investors

“One thing you do need to remember is that you need to kiss a lot of frogs – you have to talk to a lot of angels. You need to find someone who understands your market or your sector. Ideally, it would be good to have a lead angel – someone who comes inside your business and helps. Behind that you can pull together quite a bit of passive money as well.

“You need to make sure you have undertaken due diligence and you understand the capability of the person. For a start, if you haven’t yet been on our website ukbaa.org.uk, then you should. We have a big directory of syndicates and angel groups out there which would be a good starting point.

“In reality there is plenty of angel money out there [but] it’s about making sure you’ve got the right money. Don’t just grab anybody’s money, you need smart money.

“A group of angels can see thousands of business plans in a year but only invest in, say, 20 of them. So we talk about 2%. You need to get down to that group. It’s about making sure that your business will tick all the right boxes.”

Pitching events

“Make sure you turn up at pitching events as you will have to network. Ensure that the pitching events you go to have real angels there, not just a lot of people in the room. Ask the organisers who will be in the room before you apply.

“Sometimes smaller events with a small group of angels in the room can be even better than big events with thousands of people. Don’t pay to pitch unless you are really offered additional value; in general you shouldn’t be asked for money for pitching.”

How to approach investors

“You need to have your elevator pitch ready, sometimes you might only have 30 seconds to talk about your business. You need to practise your pitch as it could be 30 seconds or a one to two minute pitch. You need to be able to quickly summarise your business and not talk about the small details. Discuss the traction you’ve got and what you are looking for.”

Talk to “real” angel investors

“Don’t be afraid to ask the names of other businesses the investor has invested in. If they are a real investor, they will be proud to talk about their investments and tell you about their portfolio. If you’re talking with a not-so-active angel, they won’t be able to reply to this question properly.

“Saying that, investors cannot be judged by the number of investments they’ve made in a year. Some investors are full-time and make more investments, others are less involved and invest as an aside from their day job, while others will be very sector specific.”

How to follow up with investors

“Don’t add an investor on LinkedIn right after a pitching event. Instead of sending a message to connect on LinkedIn – the usual ‘Hi, we met last night, I’d like to add you in my LinkedIn’ – go and send them a short slide deck, remind them that you met and then see if they would be interested in talking further after seeing your pitch deck.”

Pitch decks

“10 or 12 slides is enough for a pitch deck. [You should include information] about your team, your achievements to date, your product/service, your market, your customers, your competition, your growth strategy, financial projections and how much money you are looking for.

“[Once you’ve sent your pitch deck] if an angel investor is interested they will [generally] come back with some questions about numbers or market. Be quick to answer the questions and don’t wait. Make sure you have a Dropbox folder or any folder where you have gathered all the information in detail about your market and your business so you can easily find it and share with the investor. Be quick and efficient. Do your preparation before you do your first knocks on the door.

“If an angel decides it’s not for them, they can pass it on to someone else who might be interested. Make a great first impression and even better second impression.”

What angel investors look for

“An investor looks for a great entrepreneur, the business comes after that. For instance, [say I met you and] you’re a great entrepreneur but I’m not interested in investing in your sector, then I would be happy to introduce you to my colleague or another investor who might have an interest in this sector. We look for bright, passionate, experienced businesses owners with a track record of achievements.”

Due diligence

“The biggest due diligence we investors do is on you. [We look at] what’s on your Facebook and LinkedIn, we ask for references. The biggest thing we go after is you as we put our money and faith in you to execute the business and look after our money.

“What investors don’t like is a lack of transparency. If you have a loan, tell us about it, if you have smashed your credit cards, tell us about this as well. Don’t hide anything when it comes to your financial situation. Do you really have these customers? Do you really have these followers? You need to have evidence to prove this. Honesty is very important.

“If we found out that what you’ve told us isn’t true, then we’re unlikely to proceed.”

Negotiating the deal

“Angels are not there to rip companies off. There needs to be a balance between the valuation and the amount of equity we are looking for. That’s probably the biggest area of tension between angels and entrepreneurs. You might have a very high valuation for your business compared to what investors would offer.

“For some investors, if you’re a start-up with no revenue and nothing yet on the table then they would not value it at more than half a million. [So you need to think about] what’s the value you’ve created so far? Your customers, traction, followers… Once you’ve got more traction, you can put more on the table and so can we.

“You need to be flexible around this for your first seed round because as soon as you get this seed investment, this will increase your business’ value. What angels don’t want to do is overpay. Angels will look to negotiate with you to come up with a sensible valuation and, if you absolutely stick to your guns, the investor will most likely walk away. As a guide, you should not be looking to give away more than 20-25% in your first round and you must make sure that you do not give away too much equity.”

Timeframes

“If all your ducks are in a row it could take six weeks to three months for the deal to go through; it’s normally down to the legal parts.

“Get yourself organised first, respond very quickly to investor questions, and make sure you look at legal templates to reduce the cost. You don’t want to be ripped off by a lawyer. It should be a very simple transaction and the speed will depend on the competence of the lawyer.

“You must be EIS and SEIS-eligible already. If you’re not yet, then make sure you are. Go on the website and get it done as that’s a big benefit. Most angel investors look for this!”

For more information on angel finance, click here.

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