Many start up companies need to raise capital to grow or expand. One method may be to secure “Angel Money”, amounts typically in the $25,000-$100,000 range, from an angel investor. Entrepreneurs can find this challenging, largely because they make one or more of the following mistakes:
Lack of preparation
Having a sound business plan in place that covers a wide range of topics is critical. You will also need to demonstrate solid reporting procedures and the skill and experience to implement the plan. If you don’t have your “ducks lined up” as the saying goes, investors will be turned off. You need to be realistic with your assumptions and expectations and have contingencies in place if business does not develop as expected.
Lack of sales
Unless you have a history of successful ventures you are going to need to prove a market exist for your product or service. Is there a sales history or commitment for future sales?
Approaching Angels too soon
Typically you would only attempt to raise equity once you have exhausted all debt solutions for raising funds. The investors aren’t going away, so approach them only when there is a clearly defined need.
Approaching the wrong people
All investors have different criteria in terms of the type of business opportunity they may gravitate to and the type of financial terms they seek. One size does not fit all, so do your homework on who you approach and why there might be a good fit from both sides.
Not pitching Angels correctly
Angel investors differ in terms of their objectives, styles and consequently how they need to be pitched. The level of engagement will vary depending on the amount of funds sought and you can expect more due diligence with sophisticated investors or those that are part of a venture capital group.
Not understanding it is a process
Raising money is a marathon not a sprint. You will be expected to adhere to the process of “due diligence” on behalf of the investor and that can take time, especially if you have not completed the proper preparation up front.
Not having an overall financing strategy
Angel money is typically a bridge to additional financing so you need a clear vision of what the next step is in the process. Is there a clear exit strategy in place for your investors?
Not offering enough of a return
Statistically for every 20 companies an Angel invests in, 16 will go bankrupt within 5 years, 3 will make a modest return on their investment and only one will be the “home run” ball where they have the potential to make say 25 times their initial investment. The problem for investors is that all 20 need to look like winners from the outset, as they truly have no idea which of the 20 will actually result in the desired pay day.
Thinking you are special
Thinking you are smarter than the competition, the marketplace, etc and that you will eventually be the “winner” is no different than playing poker at the casino. Everyone at the table thinks they are the best player. Win based on your preparation, not your talent.
Thinking no means no.
Being turned down from an investor does not necessarily mean “no”. It could mean “not right now” due to any number of circumstances, but probably some combination of the points previously covered. It does not mean they don’t like your idea or lack confidence in you as an entrepreneur. Ask for feedback on why they said no and work to correct the deficiency before asking again.
We welcome you comments.