Image by: thinkpanama
By Michael Sterling
Angel investors make the world of business go round. By giving financial help to start up companies, they allow a potential idea to become a worldwide corporation. Depending on how much the investor believes in you, he/she can give enough to cover supplies or even allow it to get off its feet for years on end.
Peter Thiel’s $500K investment to Facebook led to its ultimate rise as one of the world’s most successful companies, and now with resources like Angel.co, investors and business owners have intertwined into an incredible network of partnerships. So when it comes to getting their attention, one must always be willing to push the envelope.
#1) Leave Room For Their Ideas… To A Certain Degree
Smart investors want to get the meat while it’s raw, otherwise they miss the opportunity to watch it cook. Coming into an already thriving business will never benefit them as much as it would have had they entered the game early.
As a business owner, a nice trick is to always leave wiggle room for an angel investor to suggest improvements either in the business or creative side. If you’re smart, you can leave bread crumbs scattered about your proposal, purposely planted for an investor to go towards the direction you had already planned beforehand.
Ultimately, an angel investor is financing your idea and product which is why your management needs to be trustworthy, respectful and above all, likable. At the same time, people with money love to feel involved with the process.
Stroking one’s ego by making them think they’re offering concepts behind the creation will not only get them eager to give more money, but it might also give them an incentive to stay long term with the company since they’re now “invested” intellectually.
#2) State The Problem & How You Will Fix It
A proposal isn’t just a detailed description of the company, product, and profit you expect to gain. It needs to have something to offer the world, a solution to a problem which can only be fixed by your product. The impression you must give is that your company is a much-needed investment, and that it’s seemingly impossible for consumers not to want to use it.
Without sounding too arrogant or money-hungry, instead of speaking from the point of view of the consumer, speak in terms of how it will affect humanity, the customer’s experience, and what you need to make this a reality (dollars and time).
When you focus on anything else, you risk the chance at looking like a used-car salesman. No one wants to feel like they’re being conned, especially an investor.
#3) State The Advantage Over Competitors
It’s always a good idea to not only list competitors and other products relating to your service, but to make certain you state the advantage you have over them. Most business owners tend to list their competitors and what makes them different.
This might seem like a good strategy, but angel investors don’t want to know what makes you different. They want to know how you’ll keep them at bay.
Every company has something to offer that’s different from the rest, whether it’s relating to the product itself or the experience. A smart business owner will dig deep to discover their strengths and weaknesses, compare it to their own, find a solution, and articulate it cohesively in a business plan.
#4) Finances: Past, Present, & Future
According to data collected by the Kauffman Foundation, the best estimate for angel investor returns is 2.5 times their investment, even though the odds of a positive return are less than 50%, which is competitive with the venture capital returns.
By including revenue and expenses of the last 2 to 3 years (if relevant), and projecting them for the next five (also implementing the current and future state of the economy), showing clearly any growth assumptions, and highlighting the break-even point, you are subliminally telling an investor that you are dedicated to not let their investment go to waste. Make them feel like they’re in good hands.
#5) Include An Exit Strategy (To Ease Their Mind)
Many entrepreneurs build companies with the intention of selling them later on, reaping the profit made. Despite their confidence, experienced angel investors are able to spot the scam. You must always have a precise vision of building a sustainable business. One of the things that make you stand out is an exit strategy.
A great proposal will provide information on when and how an investor can get their money back, and what sort of return they might expect afterwards. Your plan might be bright, enthusiastic, and fancy, but if it doesn’t answer an investor’s concerns, you will give the impression that you’re in it for the wrong reasons. That will always be a deal breaker.