During the later days of the pandemic, start-ups are finding themselves in a strange situation. Many offer appealing work-from-home or flexible options, meaning they can draw in a strong pool of talent. In turn, they can help combat unemployment by providing relatively pandemic-proof jobs. However, during and post COVID-19, some investors may be wary of spending their money on an unproven business concept—some may even simply have less money. While capital investments seem to be staying strong throughout this trying period of history, it has also quite simply never been the easiest task to attract investors.
This is where angel investors can make a large impact on the present and future of a nascent start-up. In short, angel investors provide capital to an early-life business, and they frequently receive equity or convertible debt in exchange. Beyond that, they work to help start-ups in their earliest stages, before most other investors begin to back them. “Angel investors can provide the first bit of funding a start-up will ever see. They frequently lend valuable knowledge and expertise to new businesses,” says Zain Jaffer, a tech entrepreneur and the Founder of Zain Ventures. “Without angel investors, many start-ups would have needed to fight long and hard to progress.”
Thankfully, angel investors are becoming easier to find. In 2020, research out of the University of New Hampshire found that there was an increase in the number of angel investors and the number of investments they made. Further, there was a 6% increase in the dollar amount invested by them. In the year the report came out, there was a grand total of $25.3 billion in angel investments, and the number of active investors totalled 334,680.
Angel investors are a diverse group. Many of them are experienced investors with a good deal of individual wealth. Natfluence noted this can include some famous faces such as Ashton Kutcher and Elon Musk. But the group noted that many are simply accredited investors with at least $200,000 in annual income or a net worth of at least $1 million. Sometimes, friends and family can even be angel investors, if they believe in the product or business their loved-one has created.
Bearing in mind that angel investors can hail from almost anywhere, it’s a good idea to know how to attract them. And knowing what signals a smart investment and what signals a red flag to these angels can make all the difference.
Finding a guardian angel
There are myriad services across the internet through which start-ups can find angel investors. They can begin to search on platforms such as Crunchbase, Microventures, AngelList, Gust Angel Network, and the slew of other options available online. However, having a solid understanding of a business and some promising early data can help aspiring CEOs as they begin to hunt for supporters.
An Inc article suggests that start-ups looking to attract angel investors should aim to become as close as profitable as possible before seeking investments. This helps a start-up gather data, and attract investments by showing some early success. Another key way of attracting angel investors is by being able to explain their business in simple terms. Investors like being able to know what issue their prospective investment helps address, and how they aim to do it. “Start-ups can’t get bogged down with too many ideas, products, or services. Try to narrow your start-up’s scope down to a simple, understandable, and achievable idea,” Jaffer says. “Investors want to know exactly what a company is about before they invest time and money.”
It’s also essential to know exactly what angel investors are looking for in a start-up. According to a Natfluence article, many investors want to see high quality returns, so a start-up can show their plans for quick but lean scaling. Many also want to see an impact from their investment—they want to invest in companies that aim to solve a problem near and dear to their hearts, or companies that align with their sensibilities.
Beyond that, investors also want to see a solid business plan, a dynamic yet cost-effective team, and strong leadership. They are also more likely to invest in a business that has a clean reputation. According to a GoingVC article, start-ups in “shady” industries like gambling, and start-ups with a history of legal issues will effectively scare off funding. In general, it is good practice to keep legal records organized and to be able to answer any questions that investors may have about a start-up’s legal past, present, and future.
“It is essential for start-ups to be able to back their pitches up with numbers while they are on the hunt for angel investors,” Jaffer continues. “But just as important is the ethos under which a new business operates. Hard numbers speak volumes, but trust and faith in the teams behind those numbers often matter more. Ultimately, we invest in people.”