Looking for Angel Funding? Here’s How …

Editor’s note: Bill Warner is the Managing Partner of Paladin and Associates (www.paladinandassociates.com), a business consulting firm in the Research Triangle Park area of central North Carolina, and is the Chairman of the Triangle Accredited Capital Forum

RALEIGH, N.C. - If you are planning a high growth business that will make a lot of money, but you need to raise funds to get it started, your business might be attractive to angel investors.

But, where and how do you find them? When you find them, how do you approach them? When you approach them, what do you say?

Successfully approaching angel investors takes a lot of dedicated time and focused work, because it won’t happen otherwise. Here are ten tried and true secrets to successfully getting yourself in front of angel investors that might be interested in your business:

1. Know what an angel looks like. Technically speaking, angel investors are wealthy individuals that are accredited by SEC guidelines, who dedicate a small portion of their overall net worth to investing in high risk venture investment. On the not so technical side, angels are successful business people who have a spot in their hearts for entrepreneurs. They most likely have had considerable exposure to early stage companies both as a participating entrepreneur as well as an investor. They love the challenge of start up companies and in many ways want to contribute their experience and know-how to other entrepreneurs. It’s a chance for them to “give back” to the business community some of what has made them successful. You may know some already. They could be friends, family members, college buddies, country club associates, business associates, successful business people all of whom devote a small part of their investment portfolio to venture investing. They like helping entrepreneurs and want to help them become successful.

2. Identify the angels in your area. They are territorial and many of them roam in packs. Go to the Angel Capital Association website (www.angelcapitalassociation.org) to find the names and contact information for the angel investor organizations in your area. Many also roam alone or in small private groups. They are hard to find. You need to make a habit of doing a lot of business networking. The more business people that you meet at networking events the better your chances of finding them. Let people know you are raising angel money to maximize your chances of getting a referral to them.

3. Find their sweet spot. Go to the websites of the angel organizations and have discussions with the ones you meet to find out their investment profile. Find out what their preferences are; for example, technology, life sciences, real estate, retail, chemical and medical devices. On their website, read about their investment strategy and criteria. Look at their actual investment portfolio. That really tells the truth about the kinds of companies they write checks to. You are looking for investors who have a preference for your kind of company because they will be the ones you actually pursue.

4. Go where they hang out. Serious angel investors are going to hang out at events where they can see good companies. So, they are looking for you too. Make a habit of attending local business networking events, particularly those that are featuring company presentations and technologies. Venture capital events are a must, particularly those that have a special angel investor session. Technology shows are always worth attending, but you have to meet a lot of people to find the investors in the crowd. Most communities have business gatherings that are sponsored by business organizations and business publications. Attend them as well, looking for the people that are looking for you and looking for people who know angel investors.

5. Get a referral – No cold calls. When you have identified an angel or angel organization that you want to approach, you need a plan of attack to get their attention. Find someone who knows one of the principal leaders of the group or individual investor, and ask them for a referral. Most angels will at least take a phone call from you, if you have first been introduced by someone they trust. It works almost all the time. Do not send a business plan to an angel out of the blue sky without an introduction. They already see hundreds, and yours will go to the bottom of the stack, maybe never to be seen again. Of course, if you have met them and have established an initial positive report, then work out a way directly to send them your business plan.

6. Be able to explain your business in 45 seconds. You have probably heard about the elevator pitch. Believe me; it’s important to be able to explain your business this quickly. When you first meet an angel, you need to get them initially excited about your business, so that they really want to know more about it. I know it sounds impossible, but you really can do it this quickly. Practice it and you will be surprised how effective a tool it is in getting someone interested in your business.

7. Know your business completely. A business associate of mine, upon seeing a business plan presentation that is full of techno-babble, says, “Well, there’s another science project.” Angel investors want to know about your entire business, one component of which is the product or service itself. You need to be able to explain your market, the buyer whose need your are satisfying, how you will beat the competition, your marketing and sales strategy, the financial dynamics, your management team and your investment opportunity. Know all these major subjects cold and have credible and clear explanations.

8. Know your cash needs and uses. Too many entrepreneurs freeze when asked how much money they are raising and what they are going to do with it. This can’t happen because you will lose all credibility. Do your financial homework and be able to explain in some depth how much money you need to take you to a positive cash flow position. Be able to explain what you will be using the money for and the milestones that will be achieved. Also have a good understanding of the basis for the investment, being able to explain how much of the company you are selling and the basic investment terms you are interested in. You will certainly get asked this question almost immediately upon meeting an angel. Better know the answer.

9. Customize your presentation. If you are fortunate enough to be invited to a meeting with an angel or angel organization, do your homework about their preferences so that you can make sure that you are making the important points about your business that interest them the most. Doing this maximizes your chances of getting their interest to learn more about your business, leading towards a potential investment.

10. Anticipate their questions, and know the answers. You need to really be familiar with the kinds of questions that angels will ask you, even at your first encounter. If you make a very positive first impression, when you initially meet an angel, your chances for further discussion are much greater. If you come across like a novice who has not done their homework, you could be discounted out of hand. So, look smart by knowing the answers to the many different questions that you could get asked and be able to carry on a business conversation at the level an investor expects.

Approaching angels is not much different than approaching potential customers for your products and services. Take the time to learn about their investment strategies and preferences. Be prepared by knowing all about your business, and practice communicating it concisely. Carry a positive and enthusiastic business demeanor when you approach them. And, by all means, move the conversation forward to the next logical step in the investor’s process of evaluating your company. Good hunting.

Bill Warner is the Managing Partner of Paladin and Associates (www.paladinandassociates.com), a business consulting firm in the Research Triangle Park area of central North Carolina, and is the Chairman of the Triangle Accredited Capital Forum (www.capital-forum.com), an angel investor network with over one hundred members throughout the southeast.