An increasing number of individuals are venturing out on their own, eager to become the next Elon Musk or Michael Dubin. Early-stage startups rely on angel investors to help drive critical growth. An investment provides entrepreneurs with much-needed funds in exchange for equity and strategic relationships. In 2016, roughly 305,000 angels invested $24.6 billion in companies across the country. To better understand how to increase your chance of landing an angel investor, I sought insight from Jeremy Larner, an angel investor who has helped finance over 100 startups (including Dollar Shave Club and Postmates.com). Below are Larner’s tips.
1. Tell Your Story: Angel investors aren’t just investing in products and services; we’re investing in people, too. We want to know about the story behind the brand.
Gaining the financial backing of angel investors relies heavily on a founder’s ability to convey a compelling story— and knowing what investors to target
for your industry. Here’s how to increase the odds and get them in your corner.
Did you build a travel app because of a bad experience you had while waiting for a connecting flight? Start a company for veteran benefits because you struggled to find resources after deployment?
Tell us how you got here today, and don’t be afraid to show enthusiasm and passion. These are key ingredients we expect to see in any entrepreneur before we invest.
2. Solve A Problem: Your product should solve a problem, period. Be prepared to communicate how your business provides a solution to an unmet need. If there are other businesses similar to yours, describe how you take a unique approach to filling a gap in the market.
3. Get Your Financials In Order: A company valuation determines your startup’s worth. It factors in your profitability, ownership, market share, future projections, and reliable forecasts. Don’t be afraid to ask an angel investor for help determining an accurate valuation.
4. Create A Business Plan: Business plans show angel investors that you have an actionable agenda for business growth. Your plan should include the following elements:
- An executive summary that describes your objectives and how you plan to achieve your goals
- A company summary that describes the founders and mission statement
- A market analysis that details your market potential, customer acquisition strategies, competition, and economic climate
- A revenue projections section that addresses your current sales and forecasts, expenses, cash flow, and assets and liabilities
5. Conduct Due Diligence: A due diligence folder contains the data that validates your business and proves that your business is low-risk. Investors use due diligence to determine whether a potential investment is worthy of funding. According to a report from the Angel Capital Association, investors who spent at least 20 hours on due diligence were five times more likely to have a positive return.
Your report should include financial reports, stockholder communications, supplier agreements, and loan obligations, among others. Use this due diligence checklist as a guide to get started.
6. Focus On Your Market: Hone in on your target market, and don’t spread yourself too thin. Have a plan to reach a specific portion of that market, rather than aiming to take on an entire industry. Being overly ambitious can make your overall presentation feel amateur. Pay particular attention to your marketing channels and how you plan to reach your market.
7. Be Transparent: Transparency is necessary during investment conversations. Investors don’t expect your business to be perfect out-the-box. Maybe you owe more debt than you’d like, or have struggled to meet demand recently. Be honest about your struggles, and engage in an open conversation about your plan to overcome those challenges.
8. Describe Your Exit Strategy: An exit strategy demonstrates that you have a clear, long-term plan for transitioning out of the business. Any investor wants to know how you plan on leaving a business if the company is bought by a larger company, sold to a private investor, etc. You should have a thorough exit strategy in mind, and be flexible with having exit option discussions with your potential investor.
This article was written by Kimberly A. Whitler from Forbes and was legally licensed through the NewsCred publisher network.
The views of the author of this article do not necessarily represent the views of First Republic Bank.