You've done your research, found some promising sources of angel funding and you're ready to pitch some investors to help launch your company. That's all well and good, but do you know how to convince angels to take you under their wings?
Brian S. Cohen shared a few tips with Small Business Computing on appealing to angel investors and making your case in a way that improves your chances of securing funding.
Cohen is chairman of New York Angels, "the largest, most active angel group in the U.S.," he says. He is also the co-author of "What Every Angel Investor Wants You to Know," a book that provides an insider's view of the angel investing scene.
"Every startup company in America needs money," says Cohen. Therefore, angel investors have to be choosy lest they become ATMs for every startup or existing business that's expanding or shifting gears.
How to Secure Angel Funding
Echoing some of the themes in his book, Cohen offered the following tips to help entrepreneurs successfully nab angel funding.
Make Them Believe
Your idea for a product or service may be trailblazing and packed with innovation, but if you don't connect with investors—make them believe—then it will be an uphill battle for your startup.
Don't discount the emotional aspect of raising funds, advises Cohen. Even in context of asking for money, you're still entering into a relationship. It will be much easier for everyone involved if your investors believe in your business and, perhaps just as critically, in you.
Get them swept up into the same passion that you feel for your business and its chances in the marketplace. "You're investor-raising, not money-raising," reminds Cohen.
Know Your Customers
"Get inside the head of potential customers," says Cohen.
Successful entrepreneurs that consistently stay ahead of the game "see what others don't" and "develop deep and thoughtful insight" into the mindsets of customers. While these can include consumers or business-to-business (B2B) clients, the secret of appealing to both is that you solve a problem for them—perhaps one that they don't even know they have.
"I see a lot of companies in search of problems," laments Cohen. Provide solutions instead, and avoid a lackluster reception while you're seeking funds by asking yourself, "Is the customer deeply interested in this?"
In short, to know the customer, be the customer.
One way to get inside your customers' heads is to look into their behaviors.
"Everything about business is behavior," whether in the consumer realm or the B2B market, says Cohen. "See something that the customer does, in many cases, through something [they do] online. Look for something in the way they work and play," says Cohen.
Does your product or service enhance or enrich these behaviors?
If your offering doesn't provide a compelling enough reason for customers to adopt it, or if they struggle with incorporating it into their current behaviors, angel investors will be hesitant to fund it.
Build a Team to Execute
"It's all about the team," says Cohen. Certainly, a startup's leadership figures strongly in raising funds. However, angel investors are also evaluating whether there's a team in place that can drive the business forward.
Business is a team effort, after all. Make certain key roles are not only filled, but occupied by good, qualified people that complement one another.
Contrary to what you might think, executing flawlessly is not about getting it right from the start. Success ultimately hinges on how responsive your business is to the market.
While they don't mind some moxie, angel investors typically don't back companies that ignore the signs of a shifting market and stick to their guns. Cohen asks, "Can you quickly change as you learn more about the marketplace? Can you iterate quickly?"
If the answer is no, then expect one in return from the investors that you're pitching.
Pedro Hernandez is a contributing editor at Small Business Computing and InternetNews.com. Follow him on Twitter @ecoINSITE.
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