Updated: Oct 5, 2022
by Katharine Pratt~ an Auxilia member
Congratulations! You tested your venture idea out in the world and the results are looking positive. Growing sales, beta testers or landing page sign-ups are all great indicators your concept is generating traction. In order to accelerate your growth, it might be time to consider raising a round of angel investment.
In this article, I will share a high-level introduction on to how to raise angel investment and some things to keep in mind as you navigate the process.
Who are Angel Investors?
Angel Investors (or Seed Investors) are often experienced entrepreneurs or professionals who choose to invest their own time and money in early stage companies. They typically focus on start-ups that have validated their proposition and have the potential to grow quickly but are not established enough to get investment from venture capital firms.
It is a high-risk form of investment, typically offered in exchange for equity in the business. It enables a quick cash injection to fuel your venture’s growth and gives you access to their experiences. Given Angels invest their own money, they are keen to help the venture succeed. Alongside their investment, Angels often provide guidance on business strategy, sector-specific expertise and access to their networks.
Lastly, although Angels invest in businesses, they ultimately look to back good founders. They want to choose strong captains who can steer the business to success no matter what obstacles or changes in direction are required. Your experiences, story and personality all play a role in credentialing your business ambitions and ultimately securing the investment you need.
Before you begin…
Angels normally seek to invest in ventures with validated propositions that target large, underserved markets. Evidence of traction is key to show it is worth taking the risk to invest in you. Check out ‘Testing Business Ideas’ if you are new to the world of experimentation. There’s lots of practical advice on low-cost ways to get real-world feedback on your idea. You can also see some ideas here from Menia another Auxilia member.
Founders should also be aware that fundraising is a time-consuming exercise. It will slow the pace you can grow your business in parallel. Just go into the process with open eyes and plan the rest of your time accordingly. Unlocking an angel investment round will fuel your longer-term expansion and so it is ultimately worth the effort!
Get your house in order
The first step is to ensure you have all the appropriate paperwork in place. Seed Legals is a hugely valuable resource for this. Their tools save a huge amount of time and stress further down the line. If you are UK based it is also worth investigating the requirements for SEIS/EIS eligibility. Most Angels will only invest in SEIS/EIS eligible companies due to the tax benefits they can receive, so it is worth familiarising yourself with the schemes.
Prepare your pitch
Angels want to understand what the opportunity is, why they should invest in you and how the money they provide will be used. Structure wise, this outline from Sequoia includes the key topics to cover in your pitch. Essentially you are looking to tell a story to demonstrate why you are a brilliant investment!
Here are a few things to consider as you put your pitch together:
Ensure your explanation of your product or service is succinct. It should be no more than a couple of sentences. Building a prototype is also an impactful way to bring your idea to life.
Remember early stage financials are inherently a bit of an educated guess! Angels want to see cost models, revenue models and unit economics. They know projections will change.
Primarily you are looking to demonstrate your assumptions are logical and explainable.
Include a clear ask on how much you intend to raise and how you plan to spend the money. Setting out your operational milestones demonstrates you have a strong understanding of what success looks like for your venture.
Company valuation is often challenging for early-stage companies. This article outlines a couple of approaches. Sharing your valuation towards the end of your pitch gives you time to build rapport and set out your case for what your company is worth.
Now you’ve got all your materials together it is time to create your pitch deck. It is a good practice to create a version of the presentation you will use at investor meetings and a version of the presentation that can be read when you are not there. Always assume when you share your pitch deck with investors it can be shared further without your knowledge. Angels often share decks they think will interest other Angels they know. So you want your ‘deck to be read’ to tell your story when you are not in the room. Imagine someone reading the slides for the first time and make sure your key messages are clear and your branding is consistent.
Of course, don’t forget to practice your pitch. Pitch to friends, family, the dog, the wall. Brevity is key, the more you practice, the more you can craft your messaging. Investing time in developing your storytelling skills is never a waste.
Create a target investor list and start reaching out
Next, time to build your angel investor list, essentially a table of contacts you will target based on their skills and expertise.
Here are a few ideas for sourcing potential investors:
Talk to other Founders you know who would recommend the Angels they work with.
Research on LinkedIn; warm introductions remains a strong route for getting investors’ attention
Apply for VC office hours targeted at female founders and ask for their suggestions
Explore established angel investing groups
Join relevant demo days held by start-up accelerators as active angels often join these sessions
Once you have an initial set of names, start reaching out and organising pitching sessions. After each pitch, make sure you take some time to reflect on what went well, what questions came up and what you can improve on next time. Ultimately you are aiming to get commitment from enough investor to reach your funding target. Usually, individual Angels will invest between £5k-£50K each.
Time to negotiate
After securing a sufficient commitment, you will share a Term Sheet with your Angels which sets out a summary of terms for investing in your business. The Term Sheet is typically the focus of negotiation discussions as it includes critical elements like reporting requirements and the valuation.
Ensure you are comfortable talking about all aspects of your Term Sheet. There are lots of resources available to upskill yourself. Being familiar with the financial language makes it a lot easier to navigate these conversations confidently and ensure you get the best deal possible for your venture. Don’t forget you are giving angel investors the phenomenal opportunity to get on the rocket ship of your business before it truly lifts off. Take the time to ensure you are picking the best individuals to support your long term growth.
Remember, you are selecting them as investors as much as they are assessing you for an investment opportunity.
Finalise your documentation
Lastly, once the investors have signed the Term Sheet, you will need to share the Shareholders Agreement, Warranties and new Articles of Association. These will also need to be signed by everyone involved. Once all the documentation has been signed and the money has hit your business account, you are almost done! You will then need to issue Share Certificates and file relevant documents with Companies House (if you are UK based.) Again, Seed Legals is the most effective way to stay on top of all the relevant paperwork and ensure you don’t get caught out.
Raise a glass of champagne! You have successfully navigated raising an angel investment round. Time to start putting that money to work and grow your venture!
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Katharine Pratt is an active member of Auxilia- a group of women, passionate about increasing funding to Female founders. Katharine is a Product Manager, Founder and Coach. She has extensive experience in product development, leading high performing teams and structured problem-solving. Katharine is currently testing her own venture idea, sign up here to learn more!