Editor's Note:

How do you start building your army of angel investors?

Our Investor List + Outreach Pack is a great place to start.

It includes:

• Email templates for intros and cold outreach
• A step-by-step plan to identify your supporters and map them to investors
• A database of 14k investor emails
• >2000 investors and funds organized by type / focus

Just click here for access!

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After working with hundreds of founders through our fundraising accelerator program, I still get surprised by how much value angel investors can bring early on in a startup's journey. From making valuable intros to sharing rare insights that can completely change the strategy of a company, angel investors can play a pivotal role in accelerating your venture's success.

What is an angel investor, and how are they different from venture capitalists?

An angel investor is an individual who provides capital for a business startup, usually in exchange for convertible debt or ownership equity. These investors typically step in during the early stages of a startup, offering financial support when risks are high and the venture is still taking shape. They often use their own funds and invest in industries or technologies they are familiar with. In addition to financial support, angel investors often provide personal mentorship and leverage their networks to help the startup grow.

On the other hand, venture capitalists are typically professionals who manage a pooled investment fund. These funds are often collected from several investors and then used to invest in startups and small businesses that are believed to have long-term growth potential. Unlike angel investors, venture capitalists typically come into play after the initial stages of a startup, providing larger amounts of capital in what is often referred to as a startup's "Series A" funding round and beyond.

The key differences between angel investors and venture capitalists include the stage of investment, amount of capital provided, and the source of funds. Angel investors typically invest earlier, provide smaller amounts of capital, and use their personal funds. Venture capitalists typically invest later, provide larger amounts of capital, and manage pooled funds from several investors.

Finding Angel Investors

Step 1. Where to start

Your first step to finding an angel investor is to decide whether or not your business actually needs one, and what kind of angel investor would suit you best. There are several different kinds of funding available for entrepreneurs and small business owners, including venture capital, loans, grants and crowdfunding. Each has its own benefits and drawbacks, so it’s important to research them before deciding which one is best for your specific needs. Be realistic about how much money you want to raise; if an angel investor doesn't invest in your company because they think it's too risky, then they might not be the right fit for your business anyway.

Before you start seeking out angel investors, it's important to know what you want from them and what you can offer in return. You should have a clear idea of your company's goals, how much capital you need, when you want to raise it,  how you'll use the funds, and how much equity you're willing to give away. Also be aware that investors will want to see a viable product or service before they fund any venture.

By having all this information ready when approaching an investor, you show that you've done your homework and are serious about your business. It also shows that the potential investment is in good hands.

Step 2. Validate if a market exists for your product or service. Find product-market fit- or at the very least, have a plan to communicate your plan to.

In order to land an angel investor, you need to prove that the product or service you’re offering has product-market fit. Product-market fit is the concept of having a solution that fits well with a market. The best way to do this is simple–start using your product and see if people like it!

Of course, this isn’t always practical or possible. It can be very expensive to bring a new product or service to market and find out if it works. So in this case, start by proving your concept through other means: interviews, surveys, etc. You need proof that there is demand for what you want to offer before you can try and sell it.

The best way is by starting small and creating a minimum viable product (MVP). An MVP is usually a simplified version of your final solution without all of the bells and whistles that doesn't take much time or money to build.

Once your MVP is built, get it out into the hands of consumers as quickly as possible and see how they respond. If they like it and use it often, this could mean you're on the right track toward finding product-market fit for your idea.

Step 3. Craft a pitch deck

What is a pitch deck? A pitch deck is a presentation meant to give potential investors an overview of your business and its plans for the future. The purpose of a pitch deck is to sell your idea to investors, so you’ll want it to showcase how you plan to create value and make money.

Don't worry if you've never created a pitch deck before—it's not as difficult as it sounds. More than anything, remember that your pitch deck should be an engaging presentation of your idea and what success will look like for you and your angel investor. The goal is to get the angel investor excited about investing in your business!

While there are many different ways to structure a pitch deck, there are some elements that should be included in every one:

• An introduction to yourself, your co-founders, and their backgrounds
• An explanation of why you all make the perfect team to execute on your idea
• A detailed description of the problem you're solving (and why it's a problem that needs to be solved!)
• Your solution to the problem (e.g., screenshots or product overviews)
• How you plan on making money with this solution (your business model)

Step 4. Join local angel investing groups

The next step is to find local angel groups. These are groups of private investors that get together and invest in startups, often as a syndicate. If you're trying to raise funding from an angel investor, joining a local angel group is the fastest way to meet potential investors.

But not all angel groups are equal.

You want to make sure you join an active group that invests in your industry and at your stage. The best place to find these active groups is AngelList, which has a directory of thousands of angel investing groups around the world.

Look for groups that have been active recently- those that have made more than 5 investments over the past year. Next, look at their portfolio and make sure they invest in companies similar yours. Then, find out how they source deals and present them to the members (do they have one lead investor who sources all the deals or do they encourage members to present their own deals?). Finally, take a look at their membership stats and make sure there are enough members so you can have several meetings with different angels before making any decisions on how you might allocate equity.

Another factor you should consider when evaluating potential angel investor syndicates is whether or not they invest at your business stage. Most syndicates focus on certain stages of funding (usually one or two), so it's essential that your business fits into their area of interest if you want them to take you seriously as a potential investment candidate. 

Finally, look at how each group sources deals, as well as how candidates present their companies and what is expected of them during the process leading up to an investment decision being made by the members of the group. In other words: How do they source deals? How do companies pitch? What is the due diligence process like? These factors will vary depending on the syndicate's composition and culture, so be sure to research this thoroughly before reaching out with an email introduction or Zoom request.

Step 5. Consider applying to an accelerator

Depending on your goals and needs, joining an accelerator could be a great decision. The top accelerators provide a lot of support for entrepreneurs, including helping them find angel investors and mentors who can help with things like building a company culture. In addition to these networking opportunities, many accelerators have venture capitalists who invest in their companies at the end of the program.

If you are interested in applying to an accelerator, consider doing some research first. If you know someone who has been through one, reach out to them and ask how it went. You will want to make sure that the program will actually help your business grow if you join it. You also want to be sure that you're getting into an accelerator with a good reputation--you don't want people hearing about your experience there and wondering why you joined something so poorly run! Some examples of well-known programs include Y Combinator (https://www.ycombinator.com/), TechStars (https://www.techstars.com/) or 500 Startups (https://500.co/).

While you may not have immediate access to angel investors during the entirety of your time in the accelerator program (usually three months), when it's over, you'll leave with connections that can help you build lasting relationships that result in further funding opportunities later on down the road.

Step 6. Find a similar company to yours by using CrunchBase or reading the news. Look for their investors and add them to your target list. Map out how to get a warm introduction to these investors.

Your first step is to go off and search for a few other companies that are already operating within the same space as yours. You can use tools like CrunchBase or just spend some time reading the news to understand  which other companies are operating in your space.

Once you have a list of these similar companies, it's time to do some research on which investors invested in those startups. You can easily find this information through various sources online, such as AngelList or SEC filings (basically any company that has raised more than $500K must file with the SEC). 

Additionally, you don’t just have to find investors by looking at other companies in your industry. It can also be helpful to look at companies that are solving the problem you’re trying to solve or companies that serve your ideal customer.

Here's an example: If you’re building a tool for professional services organizations, look for companies that are serving doctors, lawyers, and accountants. Is their business growing? Do they have any investors? Who are the investors of these types of businesses? When you find an investor who has invested in multiple similar businesses over the years, add them to your target list.

Once you've done enough digging around and found yourself an interesting list of prospective investors, you should map out how you'll get introduced to them. Who do you know who knows them? Who could help get you an introduction? We often recommend mapping out someone’s network to see if there are any connections to be made. Sometimes it takes only one introduction from a mutual connection (which is why LinkedIn introductions can often be very useful). 

Finally, remember that many investors are actually in your shoes too—building their careers as angel investors for the first time as well. Therefore, don't be afraid if somebody tells you "no" or if they say they're not interested in investing right now—just move on to the next investor! With so many great angel groups out there who have money waiting to be deployed into promising startups, there's never any reason why you shouldn't keep hustling forward until somebody says yes!

Step 7. Revisit your network of people who know you and your business

Think about who you know. Who do you talk to on a regular basis? Friends? Colleagues? Family members? If you’re just starting out, then your network of potential angel investors will be small. Don’t panic! You don’t need hundreds or thousands of friends and family members in your corner; you just need a few people willing to trust you and help fund your business venture. 

Before reaching out to them, think about what they do for a living. What are their interests and hobbies? Are there any connections between the two of you that could speak to the fact that they would be interested in investing in your startup business?  Do they have any common ground with what your business does? Angel investors are looking for businesses that resonate with them personally, so don’t be afraid to use this connection as a way to make an initial contact.

 If an individual is interested in your business but doesn’t have the capital needed for an investment, ask if he or she would be willing to refer someone else who might be interested or able to invest. You never know where this could lead!

Step 8. Remember that many investors are in your shoes, too

It's easy to feel intimidated by a room full of angel investors. But it shouldn't be. Investors—even the most successful ones—don't know what the future holds any more than you do.  As you talk with investors, remember that they’re human, too—and many of them used to be founders. 

Many investors are former startup founders, which means they know first-hand what it’s like to have a big idea and an even bigger passion for making it happen. They know it can be scary to ask someone for help and support, but if their shoe were on the other foot, that’s exactly what they would do. 

They also know how hard it is to make business decisions with such little information about the future. So if you meet an investor who knows everything about your industry or trend, run away! The best investors are the ones who can admit when they don’t know something—and then go find out more. They make decisions based on the data in front of them, not what they think might happen in three years or five years down the line. You want an investor who makes up her own mind after talking with every stakeholder (including you), not someone who follows along just because her colleagues did so first. And above all else? A great investor will never try to bully you into changing your mind by threatening to pull out unless you do as she says; instead, she should be willing to change her mind based on new evidence and insights from people like you.

Step 9. Knowing how helpful angel investors can be will inspire you to continue building your own “angel army.”

Angel investors are important to a founder's startup journey because they not only provide capital, but also act as mentors who can help in other ways: 

• Add credibility. Getting an angel investor to come on board with your company is a signal that you have done something right. It shows that you've been able to convince someone with the experience and knowledge needed to evaluate the potential of a business. 
• Open up their networks. An angel investor is usually someone who has professional connections in the industry in which you operate, and this can be highly valuable if you need to find more funding or hire people for your staff. They can introduce you to potential customers, employees and vendors—all critical to the growth of most startups.
• Hands-on help. Experienced angel investors often offer helpful business advice, guidance on marketing and sales strategies, help negotiating deals and introductions to other successful entrepreneurs who can serve as mentors or advisers for your startup’s executive team

An angel investor's value goes beyond lending her money to your business or helping out a friend or family member starting a new venture or expanding an existing one (which is what most of them do). An angel investor can also play a valuable role in helping you figure out how to get started building your business idea into a profitable company.

What should you look for in an angel investor?

A good angel investor can be identified by several criteria:

1. Industry Knowledge: They should have a deep understanding of your industry. This knowledge can help guide your startup through the unique challenges and opportunities your industry presents.
2. Network: A good angel investor has a strong network of contacts in your industry. These contacts can provide additional resources, partnerships, or even future funding opportunities.
3. Experience: They should have experience in investing in startups. This experience can help guide your startup through the ups and downs of the early stages of a business.
4. Alignment with Your Vision: A good angel investor understands and aligns with your startup's vision. They should be excited about your product or service and be willing to support your startup in achieving its goals.
5. Value Beyond Money: They should offer more than just financial support. This could be in the form of mentorship, strategic advice, or introductions to key people in your industry.
6. Patience: Startups take time to grow and become profitable. A good angel investor understands this and is patient with your startup's growth process.

Remember, the best angel investors are those who can provide both financial support and valuable insights to help your startup succeed.

What should founders consider when looking for an angel investor?

1. Alignment of Interests: Ensure that the angel investor's interests align with your startup's vision and goals. An investor who doesn't share your vision can create conflicts down the line.
2. Understanding of Your Industry: The investor should have a good understanding of your industry. If they don't, they may not fully grasp the challenges and opportunities your startup faces.
3. Patience: Startups often take time to become profitable. An investor who expects quick returns may not be the best fit for your startup.
4. Value Beyond Money: An angel investor should offer more than just financial support. Look for investors who can also provide mentorship, strategic advice, or valuable connections in your industry.
5. Credibility and Reputation: Do your due diligence on the investor's credibility and reputation. Check their track record and speak to other entrepreneurs they've invested in.
6. Involvement Level: Some investors want to be heavily involved in the startup, while others prefer a hands-off approach. Make sure their preferred level of involvement matches what you're looking for.

What do angel investors look for in a startup before they decide to invest?

Angel investors typically look for several key factors in a startup before deciding to invest:

1. Strong Founding Team: Angel investors often invest in the people behind the startup as much as the business idea itself. They look for founders who are passionate, resilient, and have a track record of success.
2. Market Potential: They want to invest in startups that are targeting large, growing markets. The bigger the market potential, the greater the potential return on their investment.
3. Unique Value Proposition: Startups need to offer a product or service that is unique and solves a real problem in the market. The more unique and compelling the value proposition, the more attractive the startup is to investors.
4. Traction: Evidence of traction, such as a growing user base or increasing sales, can be a strong signal that the startup has potential. It shows that there is market demand for the product or service.
5. Scalability: Angel investors are looking for businesses that can scale quickly. The faster a startup can grow, the quicker the investor can see a return on their investment.
6. Exit Strategy: Finally, angel investors want to see a clear exit strategy. This could be a plan for an initial public offering (IPO) or being acquired by a larger company.
7. SOMETHING INTERESTING: Most importantly, angels want something interesting. Angels don't usually have the same return requirements as funds and so the main important thing is that it's something interesting to them that they want to support.

Remember, every investor is different and may prioritize different factors. It's important to do your research and understand what specific angel investors are looking for before pitching to them.

What kind of ROI do Angel Investors Expect?

This can vary widely based on the nature of your relationship with the angel investor. In general, angel investors typically expect a high return on investment due to the inherent risk involved in investing in startups. While the exact return expectation can vary greatly depending on the investor, the industry, and the specific startup, many angel investors aim for a return of at least 10x their original investment over a period of about 5 to 7 years.

This high return expectation is due to the fact that many startups fail, resulting in a total loss of the investment. Therefore, successful investments need to provide a substantial return to compensate for the risk and potential losses from other investments in the investor's portfolio.

However, it's important to note that return on investment is not the only factor that angel investors consider. They also look at factors such as the potential for the startup to disrupt its industry, the strength of the founding team, and the startup's growth potential. Additionally, some angel investors are motivated by more than just financial returns - they may also be driven by a desire to support entrepreneurs and contribute to the growth of new businesses.

Wrapping Up

Angel investors bring more than just capital to the table; they offer valuable industry knowledge, networks, and experience that can be instrumental in your startup's success. They act as mentors, guiding you through the challenges and opportunities that lie ahead.

Remember that the process of securing angel investors can be challenging and time-consuming. It requires thorough research, preparation, and persistence. You need to clearly articulate your vision, demonstrate your product's market fit, and create a compelling pitch deck to attract potential investors. Joining local angel groups and considering accelerator programs can also provide valuable opportunities to connect with investors.

As you embark on your journey to find angel investors, keep in mind that rejection is part of the process. Not every investor will see the potential in your startup, but each rejection brings you one step closer to finding the right partner who shares your vision and believes in your business.

Angel investors play a crucial role in nurturing innovation, driving economic growth, and supporting the dreams of entrepreneurs. Their investments help turn ideas into reality and transform startups into thriving businesses. So, armed with a clear strategy and unwavering determination, continue building your "angel army" to propel your startup toward success.

In the end, the journey of securing angel investors is not just about the destination but the growth, learning, and relationships you develop along the way. Embrace the challenges, stay resilient, and never underestimate the value that angel investors can bring to your entrepreneurial journey. With the right partners by your side, the sky's the limit for your startup!