9 Insights From Angel Investors About Raising Capital
Avoid early-stage startup pitfalls and secure the seed funding you need.
Not too long ago, I attended the App Idea Awards launch party. The event was at General Assembly in New York City and boasted an accredited lineup of top angel investors Jason E. Klein, Adam Quinton, Alicia Syrett, Zosia Ulatowski, and Jason Eiswerth.
Considering only 0.91 percent of startups are funded by angel investors and 57 percent of startups are funded by personal loans and credit, angel investors are looking for very specific information that will determine whether or not they choose to invest in your startup.
Below are some key takeaways from the event, including questions that everybody looking for funding should be prepared to answer.
Why are you doing what you’re doing?
Adam Quinton told the crowd that this is a question that he finds himself always asking. This gives the investor a deeper look into your mission and provides a story behind your passion. While seemingly a simple question, it does wonders for assessing one’s true commitment.
How can you differentiate beyond just different features?
Establish sustainable competitive advantage and prove it to the investors. Alicia Syrett stressed the importance of your entire concept and business model being unique. This will set you apart, showing investors that your company has longevity and won’t just be a one hit wonder.
Don’t just boast about how great your product is. Pitch the opportunities and benefits of joining the venture!
Time is limited when you pitch. Keep in mind that you’re selling the idea that the investor is joining you in business. You are not selling the product to them! When explaining the product, be thorough but concise.
This means elaborating on the product just enough so they understand how it works, but save enough time to talk about the business.
Don’t be too salesy. Refrain from saying things like “this is a one time opportunity.”
Although you may think that your idea is a “one time opportunity,” the investor will more than likely think otherwise. As I stated above, you are NOT selling them your product. Pitching arrogantly can be a major turnoff.
Know the specific TAM (total addressable market) size and your share.
Don’t be vague. Specify the exact market you’re attacking so the investor knows you are being realistic. Do your research to make accurate predictions of what your share of the market will be. This should largely determine the valuation you give. Although it’s hard to make perfect estimations, you want to show that you’ve put some thought into the numbers and they weren’t arbitrarily contrived. Consider these questions: Who are the leaders in your industry? Who are some direct competitors? What does your ideal customer look like?
Your Prototype/MVP needs traction. Speak with your customers/users.
Find potential users and ask for feedback. Collect the data about their experience with the use of the MVP. This will help you create a consumer base and refine the product. Presenting this feedback and discussing this information with the angel investor will benefit you and your business.
Have a long term vision.
Tell the investors how you see your business x years from now. If they are investing in your business, they want to know what the future will look like for you and your startup. And don’t forget to describe how you’re going to get there.
Have a really good sales and marketing plan and speak to people who know more than you.
Alicia Syrett really stressed this point. She explained that many entrepreneurs think that once they get funded, they’re set. They think word of mouth, connections, and some social media outreach will help spread their business idea to everyone. Unfortunately, especially in 2017, it doesn’t work like that. How will people find out about you? How will you beat out all of the other products being advertised online? Talk to marketers and those informed on the latest strategies for growth. Jason Klein cited the “if we build it, they will come” fallacy, pointing to the fact that a great product no longer ensures a great business.
Get to know the investor. Do your homework so you can relate to them.
When the investor asks you if you have any questions for them, don’t pass up this chance! Do some research before speaking to them and ask relevant questions. Your ability to do this well is another indicator of your talent and drive.
Moral of the story? There are so many factors at play when trying to convince an angel investor to come onboard. Most of the time, an entrepreneurs’ perceived chances of success are greater than in actuality. In fact, when surveyed, 81% of entrepreneurs believe their chances of success are at least 70%, but only 25% of startups succeed or make it past 5 years (Springer Link). Don’t expect every investor to understand and love your idea like you do. Explain everything and leave nothing to assumption.
If you have a great idea and want some feedback from investors, advisors, and other entrepreneurs, sign up for our pitch event. We’d love to see you there.