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What Angel Investors Look For In Start-ups

Investing in startups

Equity investment expert and founder of Focused For Business, Hatty Fawcett reveals what angel investors look for in a start-up and how founders can appeal to them.

Networking is a natural part of building a business, particularly when it comes to securing investment. As a start-up, it can be daunting navigating the investment space, and it can take time to work out what makes your business stand out to investors and, indeed, from your competitors. 

Angel investors play a key role in early-stage funding – bringing not just their cash but also their sector knowledge, business experience and also their contact book with them. These things can help a start-up get to where it wants to be quicker and with more success than just having investors cash! But all investors are different. Each will have their own preferences when it comes to making investments. We may not be able to read minds (to work out what each angel investor’s preferences are) but here I give you a checklist of some of the key things all investors will want to know about, irrespective of any additional preferences. 

I found these out the hard way. When I was raising investment, I wasted 4 months talking to investors who were never going to back my business because I had met some of these key criteria. Had I known then what I know now, I would have spent more time building my business to prove demand before speaking to investors. Hindsight is a wonderful thing and here I share what I learnt so you don’t waste the time I did!

A Compelling Vision and Mission: 

Angel investors are drawn to start-ups with a clear and compelling vision. They want to see that the founders are passionate about their idea and that they have a long-term mission beyond just making money. But, a sense of purpose and vision is not enough for investors. They want to know you are solving a real-world problem, and that you have identified who experiences this problem and what impact it has upon them. If you can demonstrate you are saving your customers time or money, or that you are allowing them to do something they previously couldn’t do, you are more likely to attract angel investment. A well-defined problem – and, of course, a clearly defined solution – will also serve as a north star for the founding team, guiding the company’s decisions and actions as it grows. If you are unsure whether you have developed a solution to a big enough problem, consider consulting a business mentor or a professional in your network so you feel confident when pitching to an angel investor.

A Strong and Coachable Team: 

Investors often say that they invest in people, not just ideas. A capable and dedicated team is a critical factor for angel investors. They look for founders who have the right mix of skills, experience, and determination to bring their vision to life. Furthermore, being coachable is equally important. Angel investors want to work with founders who are open to feedback, willing to learn, and adaptable. A team that can execute and pivot when necessary is a valuable asset. 

A Market with potential: 

We’ve already explained that start-ups must address a genuine market need or pain point to attract angel investors. Investors also want to see that there is sizable demand for this product or service too. They need to know there is potential for a large and sustainable market. A thorough market analysis that clearly identifies your target customer (not just with demographics but with clear articulation of the impact of the “problem” they face and their behaviours and characteristics), an overview of the current competition and potential growth opportunities is crucial in demonstrating the market’s need – and in gaining investors who will back your business. 

Business models that scale and offer growth potential: 

Angel investors are interested in companies with the potential to scale rapidly, and tha have clear plans for monetising an opportunity. They want to invest in start-ups that can grow exponentially – or that have the potential to capture a lucrative niche in the market – and who can articulate a series of profitable revenue streams that will develop as the business scales. Scalability can be achieved through innovative business models, technology-driven solutions, or the ability to tap into new markets. If you can demonstrate a clear plan for scaling the company, and generate a substantial return on an investor’s investment, you will have their attention! 

Traction and Milestones: 

Angel investors look for evidence of traction and progress. Traction is a spectrum, rather than an absolute. It includes evidence that you have built a product and service that customers love – better still that they will pay for. It also includes evidencing you know how to get more happy, paying customers. There are different ways to evidence traction which include metrics like user growth, revenue, or partnerships. Start-ups that have reached significant milestones, such as securing paying customers or achieving product-market fit, are more attractive to investors. Demonstrating progress not only validates the business concept but also reduces the perceived risk for angel investors and gives you more opportunity to negotiate a business valuation in your favour. 

When it comes to attracting investors you don’t need to have all the answers but, the more work you have done to present your business in a way that gives investors the information they need to understand the opportunity, the more likely you are to secure meaningful conversations with investors. Using these indicators, which I learnt the hard way, through hundreds of conversations with investors, will give you a head start and help you stand out in your investor conversations.

 

About Hatty Fawcett

Hatty has a strong track record raising equity investment for early-stage startups, raising over £5m for start-ups in the last 12 months. She believes start-up investment should be available to everyone and the process shouldn’t be over-complicated or unnecessarily time consuming.  

Hatty focuses on start-ups raising their first or second round of equity investment (typically raising £100K to £1 million) and works with start-up founders and small business owners to give them clarity on the information that investors will expect, and connecting them to investors and other like-minded entrepreneurs who are generous in sharing their experience and insights. Hatty encourages founders, giving them knowledge, tools and techniques they can use in their investor outreach so they grow in confidence and ability when presenting their investment opportunity. This confidence ensures founders attract a range of investors, allowing them to choose the right investor for their business and growth aspirations.

Hatty had more than 10 years of experience in getting startups funded and has seen investment from both sides of the fence, so is uniquely placed to understand the founder journey and what early-stage investors look for. Following a successful 15 year career in marketing, and a MBA from Imperial College, London, Hatty worked in two start-ups before launching her own start-up, for which she raised a quarter of a million pounds. She then looked after some of the investments Kelly Hoppen made when she was a Dragon on the TV show “Dragons Den”. 

Hatty’s unique perspective on start-up funding, and the work she does to level the playing field when it comes to raising equity investment, has resulted in her being recognised as Enterprise Nation Adviser of the Year 22/23 for Finance and Funding. Hatty was also a Finalist in the Great British Entrepreneur Awards 2023.

About Focused for Business

Focused for Business is on a mission to  level the playing field and make it faster and fairer for founders to raise early-stage (pre-seed/seed stage) equity investment. 

Best known for its flagship programme, Funding Accelerator, Focused For Business gives founders the knowledge, tools and techniques to position their business for investment, find and attract the right investors and secure the investment to grow their business. 

Since Funding Accelerator launched in 2020, the programme has raised over £11 million for start-ups, £5m of which was raised in the last 12 months.

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