Angel investors are a crucial source of funding for startups and early-stage companies. They provide not only financial support but also valuable expertise and connections. However, securing investment from angel investors is not an easy task.
In fact, many entrepreneurs struggle to get the attention of angel investors and when they do, can often alienate these angels through slipping up in one way or another. Either eventuality leads to a failure to secure funding and can leave founders with nothing to show for weeks of work.
In this article, we will explore the reasons why you may be alienating angel investors and how you can avoid making these mistakes.
What are Angel Investors?
Before we dive into it, let's first define what an angel investor is. Angel investors are high net worth individuals who invest their own money into startups and early-stage companies in exchange for equity. They are typically experienced entrepreneurs or business professionals who are looking to invest in promising startups and help them grow.
The Importance of Angel Investors
Angel investors play a crucial role in the startup ecosystem. They provide funding to companies that may not have access to traditional sources of financing, such as bank loans or venture capital. They also bring valuable expertise and connections to the table, which can help startups grow and succeed. In fact, many successful companies, such as Google and Facebook, received early investments from angel investors.
Reasons why angel investors may not invest and how to navigate them
Now that we have a better understanding of who angel investors are and why they are important, let's explore the reasons why you may not be having any luck in securing their investment.
Cold outreach
Now not everyone has an extensive angel investor black book and therefore gaining your first angel cheque can be a daunting feat. With trust and relationships playing a big part in this investment type, cold outreach can often fall short.
While time consuming, it is important to take the time to craft relationships as they will likely have a higher chance of success. Remember, Angels get hundreds of inbound messages. Are they more likely to open a name they have never seen before or someone who has made efforts to build rapport elsewhere?
Taking it a step further, Hattie Willis, co-founder of IfWeRaise states it can often be a good idea to use an Angel’s previous investments to get a foot in the door. This also allows you to “do your own due diligence on how good the angel investor is once they've written the cheque. Do they deliver what they promised?”
Founders are time poor. That’s appreciated. But give yourself the best chance of getting that pitch deck opened, booking in that meeting and ultimately securing that cheque and take the time to build relationships with those must-get Angels.
Pitch Deck Faux Pas
There is no other way to say it. Pitch decks are key to securing funds for your business. But, when pitching, so many businesses take the wrong approach. We could spend hours dissecting this element but we are going to focus on two major factors: design and outreach.
Design
Angels experience large volumes of inbound dealflow so it is important to capture attention early. Jed Ng spends “<1 minute on a deck before deciding whether I want to learn more. 90% of the time, I don’t even make it all the way through”. So it is important to have the building blocks in place to grab attention.
There are multiple places you can turn to understand how to create a good pitch deck and many tools to help you (Check out Pitch.space) but below is the basics.
- Clear, structured and engaging storytelling:
- Ensure your pitch deck tells a compelling and clear story about your business's unique value proposition.
- Visual appeal and validation:
- Enhance your pitch deck's visual appeal and provide market validation, a strong team, and financial clarity to support your claims.
- Adaptability and persuasive delivery:
- Customise your pitch deck for different audiences, practise your pitch, and deliver it confidently and engagingly to capture audience interest and action.
Our friends over at Mountside Ventures put together a nice guide on how to create a pitch deck that we think has some really good guidelines and insights.
Outreach
Attach the deck. It is as simple as that.
Nick Telson-Sillett puts it perfectly by saying “a huge thing that puts me off is when they ask, ‘would you like to see the deck?’ Bear in mind, Angels have hundreds of messages to go through so don't really want to engage further simply to get the deck. So put everything up front from the off. That's super, super important.”
Pitch decks have the potential to get your foot in the door if your outreach is colder, and has the chance to solidify interest from those you have been introduced to. Spend time making sure you are putting your best foot forward.
Lack of Preparation
One of the biggest mistakes entrepreneurs make when pitching to angel investors is not being prepared. Angel investors are busy people, and they don't have time to waste on unprepared entrepreneurs.
This preparation starts at outreach, says Emmie Faust. If a founder is unprepared and is ‘Sending the same message to all angels without taking the time to properly understand what kind of businesses they invest in, what their interests and passions are’, this is an automatic red flag.
Emmie openly states across her channels that she only backs female founded businesses but she gets “so many male founders message her about investing in their business which tells me they have done zero preparation. It would only take 1 min to read that they don’t fit my investment thesis”
If you show up to a pitch meeting without a solid business plan, financial projections, or a clear understanding of your market and competition, angel investors will likely lose interest and move on to the next opportunity.
To avoid this, make sure you have all your ducks in a row before approaching angel investors. This includes having a well-researched business plan, financial projections that are based on realistic assumptions, and a thorough understanding of your market and competition. This will show angel investors that you are serious about your business and have put in the time and effort to prepare for the meeting.
Lack of Understanding of the numbers
Dragon’s Den may be hugely over-dramatised and a largely unrealistic portrayal of an entrepreneurs journey but one thing it accurately represents about the Angel Investment process is that if you don’t know your business inside out, you will immediately lose credibility and trust from those you are asking to invest.
Richard Hadler, Co-founder of Founders Capital, says, “Not knowing the numbers inside out is often a deal breaker. As investors, we aren't expecting everyone to be an economics graduate but we do expect them to be on top of their numbers when quizzed as it demonstrates a comprehensive knowledge and understanding of the mechanisms of the business and its environment”.
So take the time to fully understand your metrics and be able to convey them to investors in a concise and clear way when the topic is addressed. Nick Telson-Sillett agrees as, “when I feel like a founder is waffling, I feel like they're overcompensating. So, just having very clear structured answers to all questions is important.” Having this ability will demonstrate your umbrella understanding of the business you are running, your ability to lead on all fronts and build credibility.
NB. Should you need support in this area, Fractional CFOs are a growing trend surrounding raises and other monumental moments so consider utilising the expertise and understanding of a seasoned finance professional.
Lack of Traction
Angel investors are looking for companies with high growth potential. They want to see that your business has the potential to generate significant returns on their investment. If you have not yet launched your product or service, or if you have not made any significant progress in terms of sales or customer acquisition, angel investors may see this as a red flag.
This point is backed up by Erik Huberman, Founder and CEO of Hawke Media and avid Angel Investor, who states, “Raising money to get to market. It just isn't where I like to put money. I want to know the founder and/or the founding team are able to get a product to market and start driving revenue without outside capital. I want my capital to be a growth driver, not something that provides runway or sustainability.”
A point backed up by Jed Ng who believes that there is no excuse to be fundraising without having built or validated your product, service or market fit. He advises to not fundraise on 'slideware' and instead show investors you have capital and efforts in. "I need to know you’re committed”
To avoid this, focus on building traction before approaching angel investors. This could mean launching your product or service and getting feedback from early customers, or securing partnerships or contracts with larger companies. This will show angel investors that your business has the potential to grow and generate returns for them.
Lack of Passion and Commitment
Angels are not just investing in your business, they are investing in you as an entrepreneur. So it should go without saying that largely they want to see that you are passionate about your business and committed to making it a success. If you come across as unenthusiastic or uncommitted during a pitch meeting, angel investors may see this as a warning sign.
A deep understanding and commitment to the industry you work in is a vital component for Nick Telson-Sillett. When considering investment opportunities, Nick states, “if a founder doesn't have a really deep understanding of the world they are operating in and they only know their product, that is a big red flag for me. I know based on history that a lot of startups have to pivot later down the road and you'll only be able to successfully pivot within the industry you work in if you truly understand it.”
Which is a good reminder if the, should be, obvious fact that Angel investment isn’t just a short term transaction. Instead you are entering a long term relationship with an individual who wants to see long term success and growth made more likely through passion and understanding.
So convey that passion to angel investors and show them your understanding of the world you operate in and that you are willing to put in the hard work and dedication needed to make your business a success. This will give them confidence in your ability to lead the company to a place where all involved benefit.
Lack of vision
While it may be tempting to address the immediate plans, don’t forget to highlight your short and long term vision for your business. Angel Investors are not a flash in the plan solution to working capital and instead are joining on this long term growth journey. So take the time to fill them in on your vision for where you are going.
“Of course”, as Tim Deeson, Angel Investor and co-founder of IfWeRaise says, “both the plans and vision will change and there will be large areas that are uncertain. But being able to discuss and debate them today is essential - otherwise it’s hard to get the Angels excited”.
Along with the tangible points listed here, vision is ultimately what is going to get the Angels to buy in as they get excited about where you, your team and they can expect to see the business in the years to come. Fear-of-missing-out (or FOMO) goes a long way to closing deals so by painting a compelling picture of the future, you could help land that Angel. So don’t let a focus on today, eclipse your vision of tomorrow and use that passion, discussed earlier, to sell the dream you have for your business.
Lack of Understanding of the Investment Process
Angel investors have a specific process for evaluating and investing in companies. If you are not familiar with this process, it can be a major turn-off for angel investors. For example, if you don't know how much funding you need or what percentage of equity you are willing to give up, angel investors may see this as a sign that you are not serious about the investment.
To avoid this, make sure you understand the investment process and have a clear idea of how much funding you need and what percentage of equity you are willing to give up. This will show angel investors that you are serious about the investment and have put thought into the terms of the deal.
Lack of Research on the Investor
Just as angel investors research companies before investing in them, entrepreneurs should also research angel investors before approaching them. “Why would a consumer hardware startup ever pitch a Biotech investor?” says Jed Ng, “An investor’s LinkedIn or portfolio will give you an 80% guess on what they’re interested in investing in” so if you don't know anything about the angel investor you are pitching to, it can come across as disrespectful and unprofessional.
Erik Huberman says, “Doing no research into what I invest in and just sending me a deck cold shows you are just spraying and praying and I don't want to invest in someone that isn't intentional with who they take money from.
To avoid this, do your research on the angel investor before the outreach or pitch meeting. Find out what types of companies they have invested in before, what their investment criteria are, and what their areas of expertise are. This will not only show that you are serious about the investment, but it will also help you tailor your pitch to their specific interests and needs.
10 more tips, tricks and insights from the Angels
I hate to be the bearer of bad news but there are a multitude of other reasons your approach could be off putting to angels. People are different and therefore one thing that irks one Angel may not be so bothersome to another. However, below is a small list of actions to be wary of as well as some useful insights provided by some Angel friends of Uncapped:
- Buzzwords kill me. Tell me what you do without using them and I will be much more interested - Erik Huberman
- Listening is one of the most important skills a founder can have. If they show signs of poor listening skills in a pitch meeting, this can be a big red flag. - Nick Telson-Sillett
- Stop thinking VC is a silver bullet. Not every angel wants to hear about all the "VC" interest you have. In so many instances (especially seed and pre-seed) this interest never goes anywhere and is a total waste of time for the Founder to be focusing on - Richard Hadler
- For those without the black book of contacts, you should get out there and start meeting people, building relationships and networking where angel collectives and syndicates are. - Emmie Faust
- I want to understand what your company does as quickly and easily as possible so don’t overload with jargon. Explain it to me like a 10 year old - Jed Ng
- Build some social capital by engaging with their content online- share, add insightful comments - be their champion like you hope they'll be yours - Hattie Willis
- In the short term there will be difficult and complicated activities that a founder must be able to do to build their business - so-called founder-market fit. And if these are repeatedly or defensively glossed over in discussion then that’s a big red flag for me - you can’t just be a great strategist - Tim Deeson
- Think about exactly who is on the cap table, what value can this investor bring me and why. Don't consider investors just as cheques... how can you or your business derive value out of them above the cash... Founders do not think about this enough! - Richard Hadler
- Founder dynamics is incredibly important. If the founders are brand new to knowing each other it is a risk. I believe the biggest reason startups fail, apart from cash, is founders falling out. - Nick Telson-Sillett
Conclusion
Angel investors are a crucial source of funding for startups and early-stage companies. However, securing investment from angel investors is not an easy task. By avoiding the mistakes outlined in this article and following the tips on how to avoid them, you can increase your chances of getting the attention of angel investors and securing funding.
Remember, preparation, traction, passion, understanding, and research are key to impressing angel investors and getting them to invest in your business.
It is also important to note that there are other types of funding available in order to scale your business. Solutions such as those provided by us here at Uncapped can be much quicker and help you to scale your brand while simultaneously negotiating the equity investment process.
Be sure to check out how Uncapped's working capital solutions can act as a catalyst for growth.
With thanks to...
For this article, we enlisted the help from some friends of Uncapped with vast amounts of experience in the angel, investment and startup spaces whom we would like to thank.
- Founder and CEO of Hawke Media
- Investments include: Klaviyo, Epic Games, RebelMail (Exit), Mosh and many more
- Founder of Female Founders Rise
- Investments include: Mamma, Run Yourself, Onewayx and more
- Co-founder of Founders Capital, Director of Odin, Founder of Boxtails
- Investments include: Spacegoods, Honest Mobile, Foundy, Odin, Katto, Mintago and more
- Founder of DesignMyNight (Acquired in 2019), Co-founder of Trumpet, Co-founder of Horseplay Ventures, Host of Pitch Deck podcast
- Investments include: Allplants, CodeFirstGirls, Mintago and more
- Co-founder of IfWeRaise, Entrepreneur in Residence at LSE Generate
- Investment include: Kinhub, HERMESA
- Founder of AngelSchool.vc, Co-founder of an investment syndicate backed by 1,000+ LPs
- Investments include: Cyprus, Bean, GroWrk Remote, Turing and many more
Founder of Guessworks, Co-founder of IfWeRaise, Host of Not My First Guess Podcast
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