10.5 Things to Know About Angel Investors Before You Contact One

Many would-be entrepreneurs who are long on vision but short on capital think that "angel" investors are the way to go for start-up capital, and they very well may be. Before approaching them, here are 10.5 things you should know:

• 1) Angel investors generally participate in the early stages of a company's growth; they will plan an exit strategy to recoup the capital they have invested within 3-5 years. At that point they expect their companies to have enough of a track record to be able to attract capital from sources that can invest a greater amount but are more risk-averse; for example, though a sale of the company. This may be through a public offering of shares (an Initial Public Offering, or IPO). Angel investors will typically sell their shares in your company at that point.
• 2) They want to make money and will cull over many proposals to find companies that they feel will be successful. Even so, they are realistic enough to know that not all of their angel investments will succeed. The success rate is typically around 30-50%. Therefore, they try to balance long shot investments with those that are more likely to succeed.
• 3) Unlike venture capitalists, they are often motivated not only by the prospect of making money but also by the desire to be involved in the operations of their companies as advisors or mentors. Often angel investors are people with management expertise themselves; they may want to nurture the growth of their companies by participating in such management activities as strategic planning or marketing.
• 4) They will want to know a lot of things about you and your proposed venture, foremost among them whether you have put your own money into it: have you, or are you willing to, take out a second mortgage on your house to fund it? Have your friends and family invested in it? In the language of angel investors, this is known as "having skin in the game." If you can't answer yes to these questions, they will probably conclude that you don't have enough confidence that your idea will succeed in the marketplace to put yourself on the line. Why, then, should they have enough confidence to invest in your venture?
• 5) To a certain extent, they will expect you to understand the limits of their knowledge: what they know and don't know, and to present your proposal accordingly. One of the things they will probably not know is the extent to which your idea is unique and protectable - particularly if it involves intellectual property, as many new companies do today. Speak to these issues without prompting.
• 6) They look for certain personal characteristics. Have you shown that you have integrity? Do you communicate clearly? Listening, which is perhaps better called "hearing," is both a necessary and rare skill. And express yourself in a lucid fashion; this includes speaking English to them rather than the language or jargon of your field or its technical details.
• 7) Demonstrate both flexibility and agility. You may have the world's best idea and the world's best business plan - today. Conditions change rapidly, and you may have to be quite nimble in order to keep up with tomorrow's market.
• 8) Know that everything is negotiable, and be prepared to negotiate with them and everyone else. The skills noted above are key to win-win negotiation. Aim to create win-win situations.
• 9) In the end, as with most other decisions, gut feel is often the determining factor in angel investors' decisions. In the end, their decisions are based on emotion, as most decisions are. But they need facts to justify their instincts.
• 10) They tend to run in packs - not herds, but packs. That is, individual angel investors may form groups interested in businesses in the same general area such as technology or biotechnology or in the amount of risk that they are prepared to assume. It is perfectly acceptable for you to ask, if you are turned down by one or a group of investors, if they know anyone else who might be interested. They often know each other and will happily recommend other people for you to contact - provided that they feel good about you and your idea.

10.5 They will not descend from the heavens on gossamer wings carrying bags of money. If by some chance they do, they're not just simply going to hand those bags over to you.

In short, there is nothing supernatural about angel investors. If your first attempts don't pan out, persevere; if your strategy is good, change your tactics. Keep on keeping on. Above all, stay out of your own way. The tips above should help you to do that. Eventually you will either find an investor or decide to give up. But don't give up too fast. Jeanette T. Wallace, Ph.D.

jeanette@leadership-works.co

314.772.7727

Jeanette Wallace, Ph.D., the president of Leadership Works LLC, is an organizational psychologist based in St. Louis, Missouri. Briefly stated, her firm's mission is to help people and organizations get out of their own way as they move towards achieving goals. She has both individual and/or corporate coaching practices, all aimed at getting improved results both personally and organizationally.

She takes a process approach in her work and appreciates the strengths that clients can leverage in turning potential into performance and helps clients recognize and use them. She offers processes specifically focused on leadership, strategic planning, customer loyalty and both individual and organizational assessments.

Jeanette is an expert facilitator. She has practiced organization development for 25 years as both an internal and an external consultant to executives and managers of companies in a variety of industries. Clients in transition find her services particularly valuable.

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