Steps to angel investment

As a startup, securing an angel investment from an investor is a great opportunity.

While venture capitalists usually focus on larger investments and may be very hands-off, an angel investor is more flexible and may be willing to work with you as a mentor.

How do you get the attention of an angel investor and win an investment?

There are several steps involved. Being patient and persistent is essential. Bear in mind that not all angels approach investments the same way, but there are some common elements.

Here are the 7 simple steps you can take to secure angel investment.

1. Connect with an Angel Investor

Of course, the first step is to connect with an angel investor. You can ask other entrepreneurs in your network for angels they know or have gotten funding from. If you meet an investor, but they aren’t a good match with your company, ask if they know other investors who would be a better fit.

You can also reach out to angel investment networks online or in person. For instance, the Angel Capital Association in USA has information for various investors who might be interested in listening to your pitch. Look for a similar body in your country.

Finally, talk to professionals you work with, including accountants, lawyers, and more. They may know of investors who are looking for an opportunity.

2. Go through the initial screening process

Different angels will have a different approach to reviewing your company and your funding needs. Many are relatively informal in the sense that they don’t have a written checklist. Instead, they’ll ask various questions and may go with their gut on whether to do more in-depth research or pass.

Others have a standardized process that they use to evaluate each company that catches their eye. The factors that angel investors are looking for include your upside potential, how well you fit with their investment focus, checking for red flags and deal-breakers, and how you stack up compared to other opportunities they have for investing.

3. Make your pitch

This may overlap with step two, but once an investor shows interest in your business, it’s time to make a presentation and pitch your company and your financial needs. The key is to make sure the investor understands precisely what you are looking for and how they can benefit.

Your team may be able to pitch a group of investors at once, which is a great way to save time for both yourself and the investors. Angel networks hold meetings regularly, and you might be able to schedule an opportunity to present your company.

After the pitch, you’ll have Q&A, and the group of investors may be willing to give feedback and advice to help you make better presentations going forward.

4. Due diligence

The first screening process is more about whether an investor is interested in hearing your pitch and taking the time to learn more about your company. Due diligence happens after an investor has decided they have a serious interest in investing in your business.

It’s an exciting time, but it’s still important to be patient and humble. A potential investor will want to verify your key assumptions and ask a lot of questions about your company. There may be some work setting up models of how your company might grow and research about the details of your operation.

An investor may want to talk to references and may look more carefully for red flags and deal-breakers.

5. Discuss prospective deal terms

If due diligence is going well, the angel investor may start broaching potential deals. This can help you discover if you and the investor are on the same page about your needs and what your potential growth looks like.

Things like company valuation, deal terms, and deal structure are the focus of these conversations. You’ll work with the investor to find a mutually acceptable deal that you can move forward with once due diligence is complete.

If you reach an agreement, the investor will create a term sheet to document the deal.

6. Working on getting the money together

Once a term sheet is agreed upon, it’s time for the investor to put the money forward. Depending on the deal’s size, the angel investor may have the funds available right away themselves.

However, many times an investor has to gather the funds or arrange to dispense them over time. Sometimes an investor will look to bring additional people in on the deal and create a syndicate.

If other investors are involved, they also need to decide that your company matches their investment vision, they work well with your team, and are comfortable with the due diligence report.

Your primary investor may look specifically for additional people who can add value through their network of connections and expertise. Of course, the other investors will need to accept the term sheet as well.

7. Closing the deal

When you buy a home, there’s a legal and financial process known as “closing” that finalizes the deal. The same is true when you’re getting funding from an investor. The final process is the closing, and the term sheet will lay the foundation for how the documents are drawn up.

Generally, you can expect an experienced lawyer to create the first draft of the documents in a week, followed by a week where the parties negotiate, and then another week to finalize the paperwork.

After closing, the round is over. However, your relationship with the angel investor isn’t — which is a good thing!

Working with your investor after the deal

Most angel investors want to be involved with your company moving forward. This might include introducing you to key people in the industry, mentoring you, and helping with your board.

Angel investors know that it can significantly improve your business growth and profitability when they are involved and help guide you. That, of course, helps the angel investor recoup their money.

Your investment angel might also decide to continue to finance your growth as you move forward, so there could be additional funding rounds with the same investor.

Working with angel investors is a long process and takes patience, but it can be very rewarding.

Interested in learning more about raising capital? Contact us for more information today!