In 2004, 18.5% of angel deals formally presented to investors received funding, nearly doubling from the 10% who landed angel funds in 2003. Yet, it remains a challenge to make the cut. Boosting your company's chances of getting a helping hand from early-stage investors requires careful preparation through each stage of the process-from finding the right angels to meeting their criteria to finally presenting your case to the potential investors. Before you begin, consider the following points, in no particular order, for coasting on angels' wings:
- Pick your moment. Timing is important: Knowing when to reach out to angels can make a huge difference. Surprisingly, the best time for an entrepreneur to seek angel funding has more to do with the business's timing than the angel's. James Geshwiler, managing director of the Boston area Common Angel Capital Association, says entrepreneurs should consider approaching angels only when a business is at what he calls the go-to-market stage.
- Angels are people, too. Have respect for your prospective investors. Understand that those who do invest are going to be involved with your company for a long time. Often one or more of your investors will take a seat on your board of directors. They know things you don't. Don't tell them you "just want the money."
- Open strong. It may be tempting to walk in to a meeting with an angel on the confidence of having landed the meeting. Don't. Prepare yourself. Many groups offer free coaching to entrepreneurs who have passed their initial screens and are about to present before the entire group. You want the deal, don't you?
- Elevator pitches never go out of style. Yes, your start-up may have a very involved basis for existing. However, you might not want to start with that. Before you approach an angel, hone your vision. Be able to describe your business-what it does and who it sells to-in less than a minute.
- Even angels have angles. The first step to securing an angel deal made in heaven is finding the appropriate potential matches. Understand that the right angel will bring much more than just money to your company. By narrowing your search of angels to those that can add value to your company, you increase your chances for a deal.
- Show them what you're worth. But don't let your enthusiasm cloud your vision. Be truthful and realistic with your valuation; don't fluff up your start-up's credentials. Avoid unrealistic "hockey-stick" projections that show your product or service suddenly rocketing. It won't.
- Present a dream team. Assemble a mature management team with a strong, experienced leader who can withstand the scrutiny of the angel's inquiries. "I want to see somebody who's going to lay himself down in front of a freight train if that's what it takes," said Bob Geras, a veteran Chicago angel. Your record should assure potential investors that you won't give up if the road becomes bumpy in the future.
- Show them the exit. The operative word in "angel investors" is investors-who need to be convinced that they'll see a sizeable return, and the sooner the better. "I want to know if I can double, quadruple, or increase my investment tenfold in five years," says David Rose, chairman of the New York Angels. Emphasize the likely exits for investors and have a handle on who the competition is, why your solution is better, and how you are going to gain market share.
- Cut the swagger. Being too independent and having a "my way or the highway" attitude won't impress angels anywhere, Geshwiler says. And above all, answer all questions honestly and don't try to hide information that doesn't support your case.