Angels are in a prime position when assessing businesses, largely due to the vast number of pitches they receive. They usually focus on the team, their traction or validation (track record), the market and routes to market, the product, the cash flows and the business plan.
1. Investing in people
When it comes to early-stage angel investing, the team must have relevant backgrounds and demonstrate they can execute and deliver on a plan. The team are particularly key in impact angel investing; the investors will need to believe in the entrepreneur’s social mission as well as the commercial risk they are taking. Should key skills be missing from the core team, investors will look to an engaged non-exec or advisory board to fill the gaps.
Angels in our Clearly Social Angels network are always impressed by an entrepreneur who truly believes in their company’s potential for social change, and can not only express that with energy and enthusiasm, but also execute and deliver. They are more likely to invest in a great entrepreneur with a decent idea than a decent entrepreneur with a great idea.
2. Preparation, financials and documents
You will need a clear and achievable strategy reflected in a business plan. This covers key areas including the market opportunity; competition and your competitive advantage; sales and growth strategy; team and board; and a brief financial overview.
It’s often condensed into a one- or two-page executive summary that can be easily sent to and digested by potential investors. In order to quantify the plan and test key assumptions, you will need a robust financial model reflecting at least the next three years in projections – including cash flow, balance sheet, and income statements.
A final and important document you’ll need is a pitch deck – a visual document for meetings with potential investors. Entrepreneurs often have two versions of their pitch deck – one with more text that they send out as a stand-alone document, and another more visual presentation for pitching to investors.
3. Searching for impact
The growing numbers of angels increasingly considering the social or environmental impact of their investments, place more emphasis on how, in the long term, this business fits with macro trends.
Most angel investors, regardless of whether they consider themselves impact investors, are more inclined to invest in a high-growth business disrupting the way education is delivered, creating jobs, and generating sustainable revenues, than one that is polluting the environment and only thinking about making a quick buck.
Angels are increasingly flocking to these types of investments not only because of the ‘feel-good ‘factor’, but also because the market opportunity makes real commercial sense.
4. Finding angel investors
Finding angel investors can be tricky without guidance. Angels mostly tend to get deals through their existing networks of investors and entrepreneurs. Many are part of angel networks or syndicates, meeting every four to eight weeks to hear businesses pitch.
Our team at ClearlySo screens about 1,000 businesses a year, selects around 50 of them to work with, and successfully helps about half of those raise investment. It is competitive and there is often a limited window of opportunity with angels; be sure your documents are well prepared in order to ride the momentum you create from the first meeting.
5. Selecting the right angels
You may find yourself in a situation where you are oversubscribed and can choose which investors’ capital to accept. Having the right investors on board is as important (if not more) than the money they bring. They should be seen as your future business partner – they will own part of the business, and will remain a part of it as it grows.
When selecting this partner, consider their experience as an investor and skills and networks they can bring, understand their motivations and expectations, get a sense of their capacity to invest in future rounds and be clear about the level of influence they will have. You may find that when you ask for money you get advice, and when you ask for advice you get money.
It can be a long, slow process to find the right angels to help you grow your business. The preparation you do before you begin is key – and then it’s just about putting yourself out there, listening to what investors tell you and being flexible without losing sight of your mission, vision and values.
Mike Mompi is the director of early stage investment at ClearlySo, which raises capital for businesses and funds that generate social or environmental impact and runs investor network Clearly Social Angels.