How to Pitch to Angel Investors

How to Pitch to Angel Investors

It is difficult trying to raise money for a start up and if you have no security or a pot of cash then you might want to look for angel investment. Angels are usually experienced business people who have some spare cash and are interested in helping small businesses but will want a return for their risk. There are ways of attracting investment and there are ways of putting off investors. A brief list of some of the do's and don’ts is below.

Locally, we have Dorset Business Angels (DBA), so we describe what happens at one of their pitch events but this is fairly common to other angel networks.

DBA have 4 meetings a year where 5 pitches are presented. Each pitch lasts for 10 minutes with questions and answers afterwards. Then the pitchers withdraw, and the investors led by the DBA team discuss the pitch. Investors may want to make an individual investment, or they may decide to form their own small consortium with a lead investor. There may be a subject specialist who would lead on this and pitches are screened and mentored by a member of the DBA team before the event.

Do not be surprised if you fail to get all the money you want from one pitch event. It's quite common for a start-up looking for money to go to lots of events, getting money from as many as possible to make up the total investment they need. You can find most of them on the UK Business Angels Association website.

The Pitch

Make sure that you are well rehearsed and keep to the time limit. Expect questions and try to anticipate where the questioner is coming from so that you can alleviate any concern and maximise your opportunity.

Make sure you cover the highlights and don't go into too much detail. Remember what you're trying to achieve - you are trying to get investment, not prove every point as you go along. There is time to do that in the due diligence process once you have got some interest.

Tell the story - where you are, where you want to go, how long it will take to get there, and what result you expect to achieve. A lot of investors are interested in helping start-ups and enjoy imparting their knowledge, so if you need something more than money - some practical help - make sure that you say so. After all, It’s in the investors interest for you to succeed. There may also be lots of experience and contacts you can tap into which will be a lot cheaper than hiring consultants.  

Make sure that you can explain that you will learn more about your business and market along the journey and demonstrate how you will incorporate that learning into your business.

Tax relief

Make sure that the capital you are trying to raise qualifies for EIS and or SEIS relief. Investors are parting with hard earned cash and want to reduce risk wherever possible. Getting tax relief is essential. If investments don't qualify, don't expect to get any angel investors.

Stage of business

If your business is very early stage with no proof of market, and has made no sales, then it is very difficult to raise money. You should at least have proof of market and hopefully have made some sales to demonstrate that your plans have some basis in reality.

Valuation

Be prepared to justify your valuation. Most businesses value themselves far too highly, but there are models available which we use to value businesses at very early stages of their life. Use whatever is appropriate to show that you are not just guessing.

Be prepared to hand over more equity than you want to. Especially in the early days. The risk is higher, and so the reward for people risking their money should be commensurate. Having said that, if you are going for more than one round of funding, which is quite usual, you need to be aware that giving too much away too early means that you will have very little left for yourself after several rounds. That is bad for the investor and bad for you. Investors will want to make sure that you are thoroughly motivated with sufficient shareholding. You need be aware of this from the beginning.

Team

If you are on your own with no team, do not expect to get funded. At one pitch event we heard the ultimate rejection question to a lone pitcher. “What happens if you fall under a bus?” There needs to be a credible team, with sufficient experience in the market, and with all the necessary functions covered. A bright engaging CEO will come across really well at a pitch. In the end, people invest in people. Ask yourself the hard question, would you invest in you?

Exit route

In your pitch make sure you mention the exit routes that can be taken so that the investors can get their reward. As a rule of thumb, it is unlikely they will want to invest for more than 5 years and they might well look for return of 5 times or more for their investment. You may expect to make a trade sale, in other words to someone larger in your industry, or you might want to market the shares on a Stock Exchange, or you might buy them back yourself. Make sure in your pitch you describe how investors can exit. Ideally, have more than one solution.

Intellectual property

Investors prefer that the company owns its own IP, but it is not essential. What is essential is that there is some sort of moat to protect the business, so that competitors cannot easily copy and overtake the company. Expect questions on this.

Strategy or plan?

The answer is both but recognise the difference and be able to describe it. Do not expect your plan to be executed in the way you expect. The usual quote, modified from General Moltke in the 19th century, is that no plan survives first contact with a customer. Your plans should be flexible and scalable, and you should be able to describe this. Not in any detail but make sure your investors know that you are aware that you do not have all the answers. It is how quickly you learn and how quickly you execute the learnings that is important.

We have worked with Dorset Business Angels over the years, and we know how investors think, how to value companies, and how to prepare them for pitches, and from then on to help them grow. What do you think you need to do for your pitch to be  successful

 

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