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How to spot best business angel_Vestbee
28 July 2021·9 min read

Malin-Iulian Stefanescu

President, Tech Angels

How To Prepare Your Startup For Angel Investment?

How to get your startup ready for angel investment? Follow the so-called chemistry!

I liked chemistry in school though I never had the chance to pursue a career in chemistry… Years later, here I am appealing to chemistry to describe the relationships between startups and angel investors, which I find similar to a catalyst triggered reaction. 

Do you remember the simple, classical experiment? In a heated solution of transparent hydrogen peroxide, which due to temperature rising splits in oxygen and water, is poured a colored solution of a catalyst (in school labs, usually, it is a dark dust or a red (ish) solution of potassium permanganate). An intense bubbling effect appears in no time, indicating that the rate of oxygen generation increased. The initial transparent solution is effervescent and totally colored. In a matter of seconds, the oxygen is released, the solution turns transparent again, becoming, what was expected, water. The catalyst separates. We can assume the catalyst did an exit, right?

In our business angels community of tech founders, investors, entrepreneurs, executives, specialists in corporate businesses, we often discuss the startups’ teams, plans, value, scaling up, focusing on the initial substance of this “reaction”. We somehow take for granted the investors’ capacity to drive the growth of the business and so, to trigger the increased rate of transformation to fulfill the catalyst role because of the money. Clearly though, judging from the myth that one in ten startups succeeds, there is more than money that makes a startup successful.

“You don’t get to be picky” consider many companies in their early days, when financing is about surviving. “It is my idea so I know what is best to do next” you may hear sometimes. On the other side, “I bring you money and I want control” say some of the investors or “I give you the money you just bring the results I expect” say others. There is a sensitive equilibrium between these extremes, which is actually the meeting point between founders and investors. “Well, it is business after all, so it’s all about the money, profit, returns - anything else does not matter” - you may have already heard this nonsense somewhere. Nevertheless, after 20 years as an entrepreneur and 10 years of being an angel investor, I can say that before profits come the quality of the partnership between the founders and the financiers. 

As in chemistry, the meeting between investors and startup team has to have the right reactants, right “temperature”, right environmental conditions and be at the right time. So, is there a way to find the right angel investor for your startup? Here are some steps to identify your catalyst.

1.Prepare the vessel 
- get ready to collaborate with angel investors

Firstly, look into the mirror. Are you really open to discuss and possibly amend what you do? Are you stubborn beyond the reasonable “firm on position”? Do you often argue to be right or are you really open to improving your ideas? Do you have a road map of the startup's future developments? Do you keep track of the inputs and outputs of the resources used? This set of questions will help you understand if you are really ready to be a business partner. Consider that very few angel investors will ever spend their money, time, and energy with an “uncoachable” founder.

2. Prepare the substance 
- get initial traction for your startup 

Now it’s time to look at your business idea from a distance, to have a high-level view, as objective as possible. Do you have a product, a team, some process in place? Already get some paying clients? Is your business idea servicing a niche? Is there a need for your solution or is it just a temporary/opportunistic idea? Most angel investors are involved in early development stages but they need some form of validation of your solution, therefore they prefer to see an MVP (minimum viable product) and, even better, some first paying customers. This will help you assess where you are, set expectations, and target the right group of investors. (To trigger discussing this point, get through our Readiness Radar.)

3. Research and refine targets 
- consider what your ideal angel investor is like

The next step is to do your research. Businesses are made by people and as much as you need investors’ money, you have to think that along with them comes a 5-10 years commitment. So, know who your potential business partner is like. Check profiles, websites, personal stories and blogs, interviews and anything which may help you understand who might be your potential partner. Talk to other startups about their relationships with investors, set expectations, and ask yourself questions needed to be answered before engaging in the fundraising process with some business angel. Is a dream investor for you out there? What characteristics will that person have? Do your targeted investors know your industry? Is there some business experience they have that you think will be useful for your startup? Are your targeted investors available for mentorship? Did they do such coaching in the past? Did other entrepreneurs work with them? Are there references in the market? Are they easy to talk to? 

4. Measure, check quantities 
- define the financial projections for your startup

What is the amount you need to get to the next development stage? Do you have a clear plan and a clear estimated sum that you already know how to manage and with what expected results? You have to be very specific here, no matter who your business plan will be presented to. Usually, angel investors commit funding between 25.000 - 50.000 EUR. They also want to know what those resources will contribute to your business. If you are at a more developed stage you might want to look for a syndicated investment or move towards a VC. In this case, spotting good investors involves not only their profile but the policies and market behavior of a company-like structure. 

5. Consider the catalyst proprieties 
- find out how you can benefit from angel investment

The experience of another entrepreneur or specialist in a certain corporate field adds value: you gain time by shortening the learning curve and burn stages already burnt by others. That’s why business angels will be the perfect investor match for your startup - they can provide immediate support which otherwise would have taken time and resources. Usually, after this phase, the combination of money and knowledge ensures a certain leap in the development of many startups which are then prepared to meet new investors and move to higher-value rounds. Assess if experience provided by business angels is of use to you, if your targets have a previous mentoring history, and if you can see the value of such a direction of development. 

6. Reaction time and intensity 
- bet on fast investment process

Business angels usually make investment decisions quicker than a VC fund and their investment process is much less complicated and formalised. On the other hand, a venture capital firms have their own procedures needed to be followed before making any  investments. They are also usually interested in later development stages when traction is more obvious and your solution generates revenues and profits. 

7. Select the catalyst 
- find relevant angel investors

All of the stages mentioned above will help you address your funding request and pitch deck to the most appropriate business angels for your startup. Make sure to update your pitch and adapt it to your potential investor requirements and focus. 

Be aware that meetings with the shortlisted investors will not be a bed of roses and you still should be prepared for some noes. It’s not an easy part but try to look at it as a new narrowing process that will give you some hints on improvements in different aspects of your business. This is the ultimate part of spotting the right business angel match.

Sometimes startups are willing to share insights on how their pitches and meetings with investors went, so it’s definitely worth approaching the ones from your industry and ask about their experience with specific investors. Except that, we also encourage you to pitch the startup anyway and collide their stories with reality - if it turns out that you don’t feel the chemistry with the picked angel investor, just move on to the next one on your shortlist and never stop pitching until you find your compatible catalyst.

8. Increase your chemistry chances 
- know where to find the best business angels for your startup

When all the “experiment” parts are well-prepared, start your fundraising process with angel investors right away. Where to look for them? Business angels are involved in many startup events, so it’s a great opportunity for networking and present your business in order to attract potential investors. Despite the fact that they are individuals, angel investors are usually a part of business angels networks, like our network TechAngels. So search for this kind of organisations that support startups from your region and get in touch with them.

In our case, at TechAngels Romania, you’ll meet over 100 individual angel investors. Everyone here is taking individual decisions; hence the diversity of profiles increases the chances of you finding a match - someone who will like your idea and will be convinced by your pitch. And here comes the interesting aspect of the group: once one of the TechAngels members is on board, usually others join and thus the expected funding is easier to be obtained through a syndicate. This helps you in setting the correct expectations and narrows your targeted investors’ search. 

Be aware that fundraising is a process - to get through it you need right preparation and then honest self-evaluation. This is where, besides the mapping and charting and measuring and assessing, and hard long working hours, comes the chemistry: the right entrepreneurs exchanging vibrant ideas helping each other grow.


Related Posts:

5 Tips On How To Kick Off Your Startup And Attract Investors (by Alex Serdiuk, CEO, Respeecher)

A Bunch Of Tips On Pitching Your Startup To Investors (by Olga Chechłacz, Editor, Vestbee)

15 Advantages Of Business Angel Funding  (by Andra Postolache, TechAngels)

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