By Phil Mitchell, Director, Harbour Key
Obtaining angel investment funding is based on making you and your business as attractive as possible to your potential investors. To do this, you need to explain your company’s proposition and the potential return on investment clearly and succinctly so that your target investors understand your offer and find it attractive. You may think you have an amazing idea, but unless you can present it well others may not take the same view!
It is important to understand that the majority of angel investors are not uber-rich people who do not care whether they lose their money. Many are simply trying to get the best return with their hard-earned savings, and are taking a risk by investing into your business. You need to impress on them how good your product or service is, how impressive you are, that you have a market which can generate a profit and that the risk they would be taking is minimised.
Some angels will be passive investors, which may suit you, but an investor who was previously successful in your sector or a related one can often bring far more in term of experience, contacts and general business acumen.
The points below will help you in your quest for investment, whether you are making the case in writing or in person. They relate to you as the business founder/owner, finance, marketing and exiting the business. Remember, business angels see numerous propositions, so you need to make yours stand out and capture their attention (for the right reasons).
A committed business founder/owner
The starting point for any investors are the idea and the individual. Angels will be attracted by someone who can clearly explain the idea behind their business and their vision for taking it forward. Not everyone is going to have the vision, drive and single-minded ambition of Steve Jobs, nor the extrovert style of Richard Branson, but you will impress potential investors by explaining in your own style, and in an exciting yet realistic way, the potential for your business to grow. Angels will also be impressed with your personal commitment in putting your own money into the business, as well as the many hours which you have no doubt invested to develop your product or service.
If you don’t have one already, start to develop a good network of connections who will help drive your business, as well as help in finding funding. This indicates that you are serious about taking the business forward and about developing routes to market.
Robust financial planning
Potential investors need to be convinced that their money will be valued and treated with respect. They will be looking to understand where the sales are going to come from, which requires a business plan, a realistic sales forecasting system and preferably the first order delivered and paid for. Can the idea be copied and is there any way that it can be protected? Do you have the systems in place for the growth you hope to achieve on the basis of the investment? Depending on how long your business has been operating, angels will be impressed by an accounting system producing management accounts, three year financials (including P&L, balance sheet and cash-flow forecast), and professional advisers already engaged.
An outline marketing plan
You may require the angel funding to help you get your product or service to market. Although you may not be a marketing expert, provide details of the actions you have taken to date, such as a clear brand identity and a website that is fit for purpose. Before pitching for funds, try and gain some profile around the business via social media, trade press, customer testimonials etc. and at least have an outline marketing plan.
A clear exit strategy
The investor wants to know how they are going to get their investment back, hopefully with some profit. Are there competitors who are likely to buy you out or is there another business which your company would complement?
Although it may seem that you are doing all the work, making your business as attractive as possible will help you get the best deal as regards the level of equity you give away and give you a greater chance of attracting an angel who brings more than just cash to your business.
An investor is giving up their personal funds and taking a risk; therefore, in a short space of time you have to impress them with how good the product/service is, how good you are and that the risk is minimal. Whether it is in writing or presenting in person, aim for as many of points as possible and you should be successful.