HOW TO ATTRACT ANGEL INVESTORS
Capital is very important in starting a business. Without capital, you cannot run your business as an entrepreneur. Funding is one of the major challenge entrepreneurs face. It is not so easy to raise funds especially in this part of the world. Most start up entrepreneurs usually do not have the money to start their business so they source for funds from external bodies. Some of the ways an entrepreneur can source for fund is to borrow from family and friends, obtain loan from banks, obtain loan from cooperative societies, apply an angel investor e.t.c. In this article, we are going to be discussing how an entrepreneur can source for fund using an angel investor and how an entrepreneur can attract an angel investor.
Who exactly is an angel investor? An angel investor is a high net worth individual who provide financial backings for small start-ups or entrepreneurs, typically for ownership equity in the company. They are also known as private investor or seed investor.
Also, you must know the type of angel investor you want to attract to your business. There are three categories of angel investors and they all have their reason for investing, we have the hedonistic, the economic and the altruistic. A hedonistic angel investor is often excited and mostly concerned about creating something new, an altruistic is mostly concerned about helping his community so you must know the type of angel investor you want to attract.
Angel investors provide capital, connections and experience to a business. You don’t just inform angel investors about your business and expect them to put all their money to fund your business. There are some criteria you must meet to attract these investors. Below are the ways in which you can attract an angel investor to your business;
- HAVE A GOOD AND UNIQUE BUSINESS IDEA
To attract an angel investor, your business idea as an entrepreneur must be unique. Angel investors take a high degree of risk and they would not want to invest their money on a shallow idea rather they go for a very good and unique idea. So, as an entrepreneur, make sure your business idea is a very good and unique one that will bring good returns for the investors. Most angel investors are looking for a higher return on their investment than they can get on the stock market. You must give the angel investors a very good and tangible reason to invest because most of these angel investors have been successful entrepreneurs so your business idea must be tangible enough to attract them.
- KNOW HOW TO PITCH YOUR BUSINESS IDEA
This is the second step to attract an angel investor to invest in your business. Many people pass the first stage of having a very good business idea but fail in this second stage because most entrepreneur don’t know how to pitch their ideas to an angel investor. It is one thing to have a good idea, it is another to know how to present your idea to make an angel investor buy into what you are saying. Presentation of your idea is very key. You must prepare adequately in order to pitch your idea well. No matter how good or smart your business idea is, if you cannot present or pitch it in a way that will convince and appeal the angel investor to invest in your business, then trust me, it is as good as not having a good idea in the first place. I do wonder when I see some businesses that angels investors invest in and I wonder whether the angel investor just wanted to waste his or her money but I got to find out that most times the way the ideas are presented ( fascinating, appealing and convincing) by the business owners or entrepreneurs is what drive or persuaded the angel investors to invest in the business even though the latter end of the business is not smiling.
One of the mistakes entrepreneurs make in this stage is that most business owners or entrepreneurs think that they must be the one to present their idea to the angel investors. My dear, it doesn’t have to be you, it is not a must for you to present the idea, if there is anyone else that can do the job better than you among your team, why don’t you let him or her do the job since everyone of you in the business is only after one goal; the business goal.
- YOUR BUSINESS MUST BE LEGAL
Another thing you must put in place before angel investors can be attracted to your business is that you must make it legal. Most angel investors do not invest in a business that is not legalized or registered because they would not want to be at a great loss so your business must be legal. To make your business legal, you must do the following;
- Have a Business Structure : Your business should have a structure, maybe it’s going to be a sole proprietorship, partnership, joint company, liability company or a corporation .
- Have a Business name : One should start thinking of the name you want to give your business, this is very important. Do your research to know if the name you have chosen can be legally used by your business, that is, if no one has registered that name.
- Register your business : After deciding on a business structure and a business name, the next step is to register your business with the Corporate Affairs Commission ( C.A.C).
- Get your federal and state Tax ID
- Permits and License: Get the necessary permits and license.
- YOU MUST HAVE A SOLID AND EXPERIENCED TEAM
For you to attract an angel investor to your business, you must have a solid team of people you work with. Often times, angel investors invest in people so you need to have skilled and experienced people working with you to convince an angel investor that your business is in the hands of the right people who possess the skills required to handle the business. An angel investor must be convinced enough that your team consist of a group of skilled, competent, knowledgeable, talented, honest, trustworthy and competent people before he can invest in your business.
- YOU MUST HAVE A SOLID BUSINESS PLAN
For you to attract an angel investor as an entrepreneur, you must have a good, convincing, appealing and solid business plan. He or she wants to know your business goals, vision, mission e.t.c to see and know what he or she is investing in. According to Wikipedia, a business plan is a formal written document that contains business goals, methods on how to attain the goals and the time frame in which the goal will be achieved.
In simple terms, a business plan summarize your business and its goals. A well written business plan also drive investors to invest in your business. A business plan should contain;
- Executive Summary : This is the summary of all what is in your business plan. The executive summary must be captivating enough to make people want to read your business plan. It should also contain your vision and mission statement.
- Company Overview : This should contain who you are, your business goals, how you intend to operate your business , and everything about the company.
3.Products and Services : This section of your business plan contains or explains a clear description of your product or service, the cost, description of your suppliers.
- Market Analysis : This describes everything about the market for your products, your market research, your expectation on the market , how your product will strive in the market, your competitors. It also contains your SWOT analysis where you list your strengths, weaknesses , opportunities and threats .
- Marketing and Sales Strategy : This section explains how you intend to market or sell your product or service , how you will promote your business and penetrate into the market. It should also include your selling cost , promotion and advertising costs, e.t.c.
- Business Structure : This will contain everything about your business, the type of business; either sole proprietorship, partnership or limited liability company , the number of staffs you want to hire and the intended salary.
- Financial Analysis : After getting your market research, a professional accountant should be consulted to help prepare the financial analysis of your business plan. It should contain realistic financial information, which should include your cash flow statement, projected income statement and statement of financial position ( balance sheet ) for the next three or five years and other relevant information.
- Conclusion : This should highlight the key strengths of your plan, remind the reader why your business is in the best position to execute the plan , and the summary of your vision and goal.
- YOUR BUSINESS MUST BE STRUCTURED FOR INVESTMENT
For you to attract angel investors to your business, your business must have a structure that allows for investment. Although some angel investors invest by giving loan to a business, ninety percent(90%) of the angel investors often prefer minor equity ownership position.
You might want to ask me, What if I am a sole trader? Does it mean an angel investor cannot invest in my business?
For a sole proprietor, to attract an angel investor, you have to be ready to give up a certain amount of ownership. You will have to make a formal written agreement with them which will contain the nature of their investment and their return on the investment.
- GIVE THEM THE OPPORTUNITY TO BE ACTIVELY INVOLVED IN YOUR BUSINESS
Most angel investors don’t really bother about the money, what they actually want is to be actively involved in the affair of the business. They want to actively participate to develop your business. If an angel investor sees the opportunity to be fully involved in your business, he or she would be willing to invest in your business. Most times, they want to take an active role in managing and develop the business, having a seat on your Board of Directors. Some of them may even want to act as a mentor so you must give them the opportunity. One of the benefit of this to you and your business is that these people are skilled people and most of them are successful entrepreneurs as I said earlier and they can use their experience in the business world to bring great ideas and suggestions that can turn your business around and take it to the next level.
- YOU MUST HAVE A FEASIBLE EXIT STRATEGY
Before an angel investor can invest in your business, he or she must see that you have a feasible and viable exit strategy. Angel investors need to see how they are going to gain or reap the return of their investment in your business so they are patient and always wishing to make long term investment. However, do not be shocked that angel investors want a particular time frame. For an angel investor who holds a debt ownership position, a common exit strategy is the sale or merger of the company while for an angel investor who hold equity ownership position, a common exit strategy is the sale of shares to the company’s principal.
Before you can think of attracting an angel investor to your business, you must be sure that your business is ready or better still investor ready. Your business must have a structure, have a solid plans and every other things listed above before you can attract an angel investor.
After you have done all these, then you can start the search for an angel investor.
ABOUT THE AUTHOR
Damilola Babatunde has a great passion for writing. She write articles on starting a business, how small business owners can grow their business e.t.c and many small business owners have really benefitted from her write ups.