It’s a tricky time to be an angel investor. On the one hand, opportunities abound, as many companies that previously would have been able to easily obtain bank loans are now out in the cold and looking for funding elsewhere. On the other hand, there’s never been more risk; tough economic conditions mean more businesses are floundering, and there are few IPOs and acquisitions to give angels the lucrative exit they crave.
Many angels are playing it safe for now. The Angel Capital Association reported that the number of deals declined 16 percent in 2008, while the investment per deal rose 4 percent. In other words, angels are putting more eggs in fewer baskets, the ones they think are sturdier.
What does it take to land angel investors for your business now? I asked someone who has reviewed a lot of business proposals, Susannah Malarkey, executive director of Seattle-based Technology Alliance. Its project Alliance of Angels reviews upward of 20 deals and usually funds several each month.
Her tips include the following:
- Be prepared: Really do your homework to find appropriate angel groups for your business sector. Then train up. Alliance of Angels holds a once-a-month clinic to teach entrepreneurs how to pitch. Other angel groups hold similar events; so attend and get free help before you make your pitch.
- Have a proven product: Because cost barriers for developing technology have fallen quite low, most angels want to see you’ve got a prototype or product already on the market. “Hopefully it’s at least in the beta test phase,” she says. “Be developing your customer strategy at the same time as the product.”
- Have traction: What can you tell the angel group about the success of your business? “Do you have customers, something in the pipeline?” Malarkey asks. “More and more, we are typically thinking we want the money you get from us to be the only money you need, to make it to profitability,” she says. “We want to see you’ve got a really good strategy for how you’re going to burn less cash over time and make it with just an angel round.”
- Check pricing: In recent years, pay-to-play has become common in angel-investing circles. Fees required to present to an angel group may range from $100 to $5,000. Make sure you know the cost and weigh whether it’s worth the money to pitch to a group, when many will let you pitch free or for a very small fee. Alliance charges just $100.