We’ve all seen it on Dragons Den, I’m sure. Watched behind our fingers as an overconfident founder has their fuzzy figures torn apart by the investors, the credibility of their project (and likely, the last few years of their lives) dismantled in a few withering comments in front of the nation.
Approaching an angel investor off-camera is not quite as daunting, but the stakes are just as high. Luckily, if you follow a few essential tips, you can give yourself the best chance of winning that investment and walking away with your pride intact.
How to convince an angel investor to invest in your startup
1. Have skin in the game
So you’ve taken the first steps to find an investor for your startup. But if you want an investor to put their money into your business, they need to see the investment you have made first. In time. In money. The blood, sweat and tears.
They know what it takes to make a business succeed, and if they don’t already see this level of commitment on your part, they’re not going to invest in the hope and the prayer that they do later.
You can also give employees skin in the game with a company share scheme. Reward those committed to making the business a success, with a share in that success.
2. Show leadership
Angel investors invest in people as much as the ideas themselves. Stamp home your credibility and authority. Even previous failures can demonstrate valuable experience and knowledge you’re taking with you into this project- mistakes you have made on someone else’s time and money.
Show them that alongside the value and funds they bring with them, you have the leadership and management team in place to provide a credible, trustworthy investment opportunity.
3. Share a realistic valuation
Make sure that the financial projections that underpin your valuation are based on future growth that is feasible.
Telling them you have £30,000 sales this year and valuing your business at £1m will have them asking serious questions about how realistic the rest of your assumptions and plans are. It may even antagonise them.
Get a trusted accountant on board to give them the confidence that your numbers are grounded in reality, not pie in the sky. Learn more about startup valuations.
4. Demonstrate the value
You’ve told them the light-bulb moment behind your product. Demonstrated the need and the market fit. The team behind it. The numbers. The scope for scale.
Fantastic, but you’ve forgotten one thing – what it means to them.
They will be listening to your whole spiel through this prism: what can I add and what can it do for me? So answer their questions for them: How will they make their money? What is the risk and how big is the reward?
If they don’t see the value, you won’t see the money. So it’s your job to make sure they do.
5. Polish your pitch
Your pitch demonstrates the solution your product brings to the market, the credibility of the team behind it and the potential for growth and return.
On occasion, the investor can see past a dodgy pitch to the true potential, but a great pitch, researched and rehearsed, makes your business that much more of a credible investment opportunity. And it is one aspect you have real control over.
6. Present a strong sales pipeline
Your product needs to stand out in the market and you need to show that other people have already recognised this value with their hard-earned cash.
You’ll need to be able to show that the market potential justifies their investment: the number of sales already, where the areas for growth lie and how you plan to expand your sales pipeline to generate that revenue.
7. Include a contingency plan
Angels invest for a return, but their experience has taught them to prepare for factors beyond their control. Showing them your projections are not all ‘blue sky thinking’ too offers reassurance to potential investors and adds credibility to your pitch.
Identifying risks, and establishing preventative mechanisms. A comprehensive, coherent contingency plan can be the difference between a “thanks, but no thanks” and the investment you need.
Hopefully, you find these tips to impress angel investors useful and, maybe one day, profitable. Learn more about startup investors (who, what and where to find them) or read our guide to seed funding.