It’s time. Your humdrum day job just isn’t cutting it anymore, and a disagreement with your boss was the final push for you to take the plunge and start your own business. But there’s only one problem: While you’re ready to start your own business, your bank account isn’t. The answer may be “angel investors.”
Usually, they have been entrepreneurs themselves. In fact, they may delight in helping start-up or even established companies grow toward success. There are countless angels out there just waiting for a worthy project to fund.
In fact, a study conducted by the Center for Venture Research at the University of New Hampshire shows that angel investors put $25.6 billion into new ventures in 2006, up 10.8 percent from 2005. And that number could grow even more if the Access to Capital for Entrepreneurs Act passes in Congress. According to the Wall Street Journal, the Act proposes that a 25-percent tax credit be given to angel investors with a net worth of at least $1 million if they invest in early-stage small businesses. Under the Act, angel investors could offset as much as $500,000 in investments.
The money is certainly out there for potential entrepreneurs. But they are not going to throw it to just anyone who walks off the streets. You have to know how to approach him and how to sell your ideas.
Here are 10 tips on how to convince an angel investor to support your new business:
• Perfect your pitch. The pitch is the product or business idea that you will present to your potential angel. It should be well thought out and fully developed. The pitch will provide the investor’s first impression of your project, so it needs to be powerful and convincing. Preparation is the most important factor in a powerful pitch, so practice, practice, practice.
• The big picture is bigger than the product. When you pitch your idea to investors, remember that your product or idea is not as important as the background work you’ve done. Spend time thinking about not only the selling points of your product, but also the strengths of your work team and any marketing information you may have already collected. Remember, angels are usually entrepreneurs themselves. They will be impressed by the fact that you knew to research the above elements.
• Keep your pitch plainspoken and dynamic. Strike a fine balance between being informative and clear and exciting and energetic. Angels want the facts, but they also want to be inspired. Most importantly, don’t lie or exaggerate. If you are not a good speaker, bring a member of your future team who is a people person. Being nervous and awkward won’t help your cause.
• Remember that angels invest in people more than ideas. Improve yourself. It is not uncommon for investors to become very active in the life of your company. Therefore, they will be more likely to invest in energetic, friendly people. Work on becoming a better people person and you will be much better equipped to woo potential angels.
• Approach angels with the assumption that they want to help you. Remember, angels have been there! They take personal satisfaction from helping new business owners make their own dreams come true. You are not imposing on an investor by asking for money. They really do want to help.
• Know which angels are appropriate for your company. To save yourself a little time in your search, be sure you approach only angel investors who would be interested in your kind of business. Ask around. Do your homework. And don’t try to fit a square peg into a round hole.
• Pony up the dough. Investors want to see that you believe in your own product, and nothing talks louder than money. It is mandatory to put some of your own cash on the line. They will expect you to put up some of your own net worth (the going rate is about 20 percent) toward your business before they contribute.
• Stay in your own back yard. Angels often want to be actively involved in your business, so you need to seek an investor who is relatively close to you, geographically speaking. Your angel should feel free to check on you at any time.
• Look for risk-takers and “live it up” types. Angels are generally quite wealthy and – by their very nature – enjoy taking risks. The same impulses that led them to be successful in their own ventures also shape their leisure pursuits. So if you meet someone who just went on a month-long tour of Nepal or rode along on an African safari, keep him in mind as someone who may be willing to throw a little extravagance your way.
• If you don’t desperately need an investment, you are more likely to get one. Proving that you have the ability to get the business up and running on your own will be a big encouragement for potential angel investors. Create a steady customer base and stay current on all of your bills. Then pitch to an angel explaining that you would like her investment in order to further develop and grow the company.
Remember above all that angels are people, too. While investors do have the money and power to fund your business endeavors, don’t be intimidated by them. Just prepare your business plan and your pitch and approach them with the same enthusiasm that they approached their own businesses with when they were in your shoes.
Ty Freyvogel, the author of “It’s Not Your Smarts, It’s Your Schmooze” and “Seize the Century!,” offers advice on his Web site, EntrepreneursLab.com.
