Angels are usually wealthy individuals, former executives, or entrepreneurs themselves who desire to work with smart startup teams. They rely heavily on their instincts, industry experience, and connections when investing in new businesses. Angel investors usually invest because they believe in your idea and that you are the right person to make it reality, so when talking to potential angels, be prepared to discuss your background, expertise and show passion for the project.
Where to find angels:
- It is smart to reach out to your network and get a warm introduction – people close to you might be excited about investing in your future, and are a good source of recommendations for other potential investors.
- Build an entrepreneurs network – connect with companies in your field and serial entrepreneurs to get introductions to their funders.
- There are also a lot of entrepreneur-turned-angels who could be an invaluable asset to your company.
- And don’t forget to tap into your service provider’s network like lawyers, accountants, or bankers who could know potential investors and could make an introduction.
- There are also a lot of local groups and online communities of angel investors – we had a great list compiled here.
Angel investors are busy and have tons of startups trying to get them to like their business so once you reach out to angels, you need to stand out to catch their attention. Here are some ways to do it:
- Have a killer pitch deck – here is the Forbes post on The Ultimate Investor Pitch Deck where you can download a free pitch deck template created from feedback from some of the world’s most active investors.
- A term sheet is your opportunity to disclose what your business is about and what you need and want in a partnership with an investor so make sure it is tailored to your business needs and expectations.
- Give some thought to economic terms that make sense for you and make sense for your potential investors.
- Make sure you think through multiple scenarios like “what if your startup is acquired before investment is converted?”
- Think through what is your valuation – take a look at this post from the Angel Capital Association on Pre-Money Valuations of early stage angel / Seed deals.
- Take advantage of the angel groups – consider the perspectives that each angel may bring to the table, account for those interests in the term sheet, and take advantage of that expertise as the founder is building out the agreement.
- Do not rush the decision-making process. Your desire to rush matters may be the reason an investor needs to pass on your deal. Educate yourself on how long it takes to fundraise, and plan your timing.
For more information on term sheets, check out:
- Term Sheets Explained in Plain English by Founders Fund,
- documents created by Cooley, LLP: TechStars Docs,
- Free Sample Term Sheets from the Kauffman Foundation: Seed Term Sheet and Series A Term Sheet,
- TechStars Series AA Documents
- Y Combinator Series AA Documents
- sample Convertible Note by TheFunded.com and Wilson Sonsini Law Firm
- Y Combinator’s “Simple Agreement for Future Equity” or SAFE
- Demand Dividend Term Sheet: an alternative to straight equity or pure debt often used for Impact Investments.
- Personal Investment Contracts as innovated on and explained by Rafe Furst, angel investor, mentor at the Unreasonable Institute, co-founder of Crowdfunder.com