Want to win angel investment? Here are 8 killer tips you need to know

Credibility and experience, business model, and more…

This article has been produced in partnership with Smith & Williamson

So you have this big business idea that you reckon will make you the next Mark Zuckerberg. From the break-even point to the colour of the sofa in your plush office, you’ve planned every little detail of your business to a T.

But the brutal question remains: where will you get the money from?

Enter the angel investor – an astute investor who’s ready to splash the cash you need to set up your business.

But who are angel investors? According to Guy Rigby, head of entrepreneurial services, Smith & Williamson, and, author of “From Vision to Exit”, an angel investor is typically a “well-heeled individual” who is ready to invest in your business “while taking incredibly high risks”.

Making money is not the only impetus that motivates angel investors, says Rigby.

“People invest in small businesses to feel a part of something. There’s more than money here. They want to invest in a concept, in a new thinking, and want to be a part of an interesting business.”

So what should entrepreneurs keep in mind to scoop up angel investment? Here are 8 killer tips from angel investors:

1. Credibility and experience

The first and most crucial aspect about the existence of any business is the entrepreneur. Angel investors often scrutinise the credibility and experience an entrepreneur has.

Rigby was once pitched to by a company which, on paper, had a very good business model. However, the business did not take off.

“The business I was pitched had no experience in the industry. After they’d done all the research, they sadly realised that they had no opportunity at all,” says Rigby. “That’s because the costs associated with their business were much higher than they had imagined.”

“Angel investors are on a look out for entrepreneurs intelligent enough to take on partners and mentors to cover areas the entrepreneur himself/herself are not so good at.”

 

2. Business model

A clear understanding of your business model is the backbone of your company – angel investors all over the world can’t stress this enough.

Rigby asks entrepreneurs one plain and simple question: “From small beginnings and limited finance, how are you going to get traction in your business?”

The biggest challenge for any entrepreneur is coming up with a profitable business model. The stronger the business model the more likely angel investors are to invest in you.

 

3. Having a working concept

For Mark Pearson, founder of MyVoucherCodes.co.uk which was sold to Monitise for £55m, having sales projections isn’t enough, he wants to see a working concept of the business.

Pearson, who’s an early investor in the £1.2bn London tech company Ve Interactive, thinks an “early traction” is a sign of a business with potential.

His tip for entrepreneurs is: “Build something. Anything. Forget coming to me with a piece of paper with some figures on it and a projection of what you will do.

“I’m more interested in what you have already done to start the business or process. What early traction have you got?

“There’s a saying – launch with the product you have, not the product you want – and far too often, ‘entrepreneurs’ ask for hundreds of thousands of pounds without so much as creating a working concept.”

 

4. How are you better than your competitors?

“How is your product better than you competitors’ product?” is the question Shalini Khemka, founder and chief executive of E2Exchange, asks businesses.

She takes into account feedback from product trials and existing customer references in addition to the financial projections of the business.

According to her, another big point to keep in mind is “the assumptions the entrepreneur made in coming up with projections of the business”.

This gives away how realistic the entrepreneur is about achieving his/her goals. Over-inflating targets just shows that the entrepreneur hasn’t done his/her homework.

 

5. Value angel investors’ time and money

Angel investor Hugh Chappell, who’s invested in tech businesses like JustPark and Lovestruck, wants to hear from entrepreneurs who value angel investors’ time and money.

He wants entrepreneurs to come with very clear expectations.

“Be clear about which functions are critical to success, i.e. tech, product, sales, marketing, content etc.,” he says.

“Remember – angel investors will want to get involved with the business only if you give them strong reasons that add value to their existing portfolio of businesses they’ve invested in.”

Entrepreneurs should never forget that there are other businesses vying for angel investors’ pot of money.

 

6. Passion

As clichéd as it sounds, passion for your business is going to help you win angel investment. Because if you’re not passionate about your business, how do you expect an angel investor to be?

Pearson says, “The most important thing I look for is an energetic, driven and hungry founder. It’s hard to turn this into a tip, because you either are or you aren’t, but if you don’t exude confidence and the willingness to succeed, it’s very difficult to invest in you.

“If you’re not a confident person, at least know your business inside and out and have a clear and easily communicated plan.”

7. Existing revenues

If you’re already generating revenue in a business, you have a better chance at proving your business is worth an angel investor’s money.

“An existing revenue stream and customer base makes angel investors take you more seriously,” says Rigby.

“Revenue and customers are clear signs that there is demand for your product and/or service. Showing these numbers can be a crucial factor in influencing an angel investor’s decision.”

 

8. Exit Strategy

Khemka says that an entrepreneur pitching for investment should be upfront about his/her exit strategy. This demonstrates that the entrepreneur has carefully considered the angel investor’s interests too while pitching for investment.

Before devising an exit strategy, Khemka wants entrepreneurs to think about “long-term plans for the business” and “what they personally want to achieve with it”.

 

Guy Rigby, head of entrepreneurial services, Smith & Williamson, will be discussing business growth at the “Unleashing British business: What businesses need to make Britain an economic powerhouse” roundtable at the Dynamic Enterprise Summit 2015.