Angel investors help bridge the gap between early funding generated from friends and family and from the venture capital you hope to secure down the road. Although angel investing is arguably more informal than professional venture capital, angel investors still look for startups that can give them a return on what is a high-risk investment.
For first-time entrepreneurs, then, seeking and securing angel funding is likely their first foray into the investment process. As such, there can be lots of questions about how to find, approach, and pitch to angels. And so we've rounded up some advice from other angels and entrepreneurs on how to proceed:
Venture Hacks' AngelList
Founded by Naval Ravikant and Babak Nivi of Venture Hacks, the AngelList is a curated list of angel investors, and can help facilitate introductions between angels and entrepreneurs.
Jason Calacanis on FOAFing
Entrepreneur, investor, and CEO of Mahalo, Jason Calacanis founded the Open Angel Forum late last year in order to provide investors and entrepreneurs. And angel investing was the topic of Calacanis's most recent missive to the "Jason Nation" email list.
In it, Calacanis discusses a lot of aspects of angel investing, including tips on contacting known angels directly. But here is Calacanis's suggestion on an alternative strategy, as he writes that "direct contact is super tricky, since angels get pounded when they are out in public, and they may ignore things sent directly to them by email (typically due to email overload, not malice)."
According to Calacanis, the best way to connect with an angel "is not to." Rather, he suggests, make contacts with the people angels know, respect, and do business with. "Your goal," writes Calacanis, "is to become a FOAF: a 'friend of a friend.'" Calacanis suggests the following path to FOAFing angels:
- Build a social media presence - via a blog, Twitter, Facebook page, comments on Hacker News, Digg and so on -- that is memorable.
- Pursue and engage angels' friends. Engage in conversation those individuals with whom an angel regularly communicates. Join in conversations on blogs and news sites, for example. According to Calacanis, "Every angel has their 50 trusted advisors, and it's your job to develop a credible relationship with them over a couple of months." Once that relationship is established, you can ask for an introduction to an angel.
- Blog about an angel's portfolio companies rather than about the angel her or himself.
- Challenge the angel. Although you certainly don't want to write things that make you enemies (and make you eminently unfundable), you do want to be seen as a "passionate, independent critical thinker."
Guy Kawasaki's The Art of Raising Angel Capital
Guy Kawasaki offers the following advice when approaching angels:
- Make sure they are "accredited" investors. In Kawasaki's words, "'accredited' is legalese for 'rich enough to never get back a penny," but their are SEC guidelines on exactly what this means and who qualifies.
- Don't underestimate them. Kawasaki urges entrepreneurs to find sophisticated investors who are familiar with the industry. Not only do you want their money, after all, you will benefit from their advise and connections. But don't underestimate them, Kawasaki cautions, and assume that because they're not VCs that somehow the process will be "easier."
- Understand what motivates them. Kawasaki suggests that this is one of the things that differentiates angel investors from venture capitalists: "Typically, angel investors have a triple bottom line," he suggests: wanting to make money, stay current with technology, and "pay back" society by helping the next generation of entrepreneurs.
ReadWriteStart Pitching Tips
We've written about pitching on ReadWriteStart several times - no surprise as it's a common concern for first-time entrepreneurs. Here are links to some of the posts where investors and entrepreneurs share their advice on how to present your case to investors effectively: