Learn how to find and work with angel investors

What is an angel investor? 

An angel investor is an individual who provides capital for a business startup, typically in exchange for convertible debt or ownership equity. Angel investors are often friends, family or accredited investors who believe in the business idea and want to support its growth.

As an early-stage founder, you're likely already thinking about the next big milestone: a Series A investment. This level of fundraising can provide the capital you need to scale as well as institutional validation for you, your idea and your team. Getting there won't be easy. In fact, only 20 percent of companies that raise a seed round ever go on to raise a Series A, according to an analysis of more than 35,000 startups by Radicle Labs. 

What are the benefits of working with an angel investor?

So, what distinguishes the successful companies seeking angel investors? SVB works with thousands of seed-stage startups and while there's no single predictor, the bank has found that companies can do best when they choose initial investors for their guidance, not necessarily the size of their check.

Strategic help from an angel can be the most valuable asset any early-stage company can get. It's worth accepting a smaller check or less-generous terms from someone who can:

• Introduce you to potential customers
• Suggest ways to improve your product
• Provide access to a network of future investors

These contacts likely will have the biggest impact on your success and, eventually, your ability to pitch VCs successfully. Focusing your fundraising on well-connected angels now not only can give your business a head start but can also save you from having to look for these connections later—perhaps after you've already given away some of your company to investors who aren't as helpful.

Connecting with angel investors

Consider that you're probably going to burn through at least $500,000 before you raise a Series A round. And, yes, getting to that amount will be daunting enough without the added challenge of limiting your potential investor pool to people whose experience aligns with your business plan. But that's startup life. Hopefully, this isn't the first time you've heard it’s going to be a lot of work.

Luckily, there's a strategy. It's no guarantee of success, but it's a way to maximize potentially your chances of getting the support you'll need.

1. Master LinkedIn

Start by building two lists: one of angel investors with relevant subject matter expertise, or who are well-connected in the field you're targeting, and another of people you know or can get an introduction to meet. You can build these using LinkedIn. The sweet spot is people who are on both lists—they're your starting point. But as you'll see, it will make sense to maintain two lists.

2. Start with friendlies

It's going to be tempting to use that connection to an A-list VC. But most seed-stage companies aren't ready to pitch a top investor or even take an introductory meeting. Typically, you only get one shot with these people. If you don't have traction with customers and a story that's been refined through dozens of pitches, you risk being forced into conversations before you’re ready for them.

Instead, reach out first to people you've worked with before or you know personally. If you don't have anyone like that in the both-list category, find the people who are connected to the insiders and ask to meet with them.

3. Focus on feedback

Never use a meeting to ask for money. Instead, use the time to share your idea, your business plan and progress to date. Solicit any advice you can get. Your goal should be to get someone excited about what you’re doing and get an agreement to stay in touch.

Everyone knows you need money, but few investors will ever cut a check based on an initial meeting alone. Choosing the right angel investor is about more than just the funding. It's about finding someone who believes in your vision, aligns with your values and can provide strategic guidance and support.

4. Plan on drinking a lot of coffee

Finding the right angel investors is going to take a lot of meetings—more than many entrepreneurs expect. A good rule of thumb is 50 introductory meetings.

But these meetings are a great opportunity, even when they don't lead to funding. You'll also start to build a network, which will pay off big when you start to hire.

As you talk to people, you'll hone your pitch. You'll want 90-second and 5-minute versions down solid. You should be able to cover:

• Why your company matters
• Why it’s relevant now
• Your team makeup
• Your product and market
• Your go-to-market plan
• Customer, prospect and growth strategies

5. Get plugged in

Join groups like Startup Grind, read a lot and engage in online conversations. Events can be a great resource but be judicious and decide which events to attend based on who is in attendance and who the speakers are. Go with the goal of meeting those people.

You'll want fellow founders in your network. Don't obsess over someone stealing your idea, as there's so much more that goes into building a successful startup. The advice, connections and ability to commiserate that can come from a close relationship with another founder at a similar stage more than outweighs any risks.

It is often said that there's a difference between smart money and dumb money. In both cases, you're getting someone who is banking on your success. But only the smart money investor has the experience and connections to help you get there.

What percentage do angel investors take? 

The equity stake an angel investor receives is determined through negotiation and is based on factors like the stage of your company, the total amount of funding being raised and the perceived risk of the investment. Typically, angel investors aim for a 10%-30% equity stake in a company.

While angel investors can be invaluable, giving up equity in your company means relinquishing some control. It's crucial to find an investor whose vision aligns with yours and who understands the long-term goals of your business.

Conclusion

Keep in mind that you're going to want an angel investor who will:

• Put in time on your behalf
• Go over product specs
• Arrange meetings with potential customers
• Help you find more investors

In short, you want value beyond fundraising. It'll be a lot of work, but it's the best investment you can make in your young startup.  

FAQs

What is an angel investor?

An angel investor is an individual who provides early-stage funding to startups, often in exchange for convertible debt or ownership equity. These investors are typically well-connected and have a vested interest in supporting innovative business ideas.

How do I choose an angel investor?

Choosing the right angel investor is crucial for your startup's growth. Look for someone who not only believes in your vision but also aligns with your values and can provide strategic guidance and industry connections. It's about finding a partner who supports your journey and contributes to your success.

What are the benefits of working with an angel investor?

Engaging with an angel investor offers numerous benefits, including strategic mentorship, industry connections and guidance on product development. Their experience and network can be instrumental in introducing you to potential customers and future investors, accelerating your startup's growth.

What percentage should an angel investor get?

Angel investors typically seek a 10%-30% equity stake in a company. This percentage is negotiated based on your startup's valuation, the funding amount and the perceived risk. It's essential to strike a balance that reflects your company's current value and future potential.

What is a risk of working with an angel investor?

While angel investors bring valuable resources and insights, it's essential to recognize that giving up equity means sharing control. Choose investors whose vision aligns with yours and who understands your long-term business objectives to mitigate potential risks.