Angel investors do what ordinary mortals will not. They have the financial ability to give life to your start-up. But they don’t show their wings to everyone. Angels have to want to be discovered. As an entrepreneur, you have to learn how to find them.
The ideal angel investor will connect to the vision of your entrepreneurial idea. Of most importance, the angel investor will want to feel a connection with you, the entrepreneur, and share some of your moral and socio-cultural values and aspirations.
Angels like money; they’re not above it all. While angel investors tend to be relational and allied with the entrepreneur’s vision, they are also attuned to the financial upside of investing.
When my twin brother Ron Koss and I started Earth’s Best Baby Food, the nation’s first organic baby food company, we relied heavily on angel investors. In many instances, they were not easy to find. But we persisted, and fortunately we met several who were attracted to our vision of promoting organic agriculture and providing high-quality, healthy food for babies and toddlers.
We learned a lot about angel investors during the tumultuous start-up period that went on for three years. Here are eight tips that might help you in finding angel investors for your venture:
1. Start with a brutally honest self assessment. This includes the merits and timeliness of your idea; the substance and professional appearance of an introductory document such as an executive summary or business plan; and an introspective look at your motivations, goals, and commitment to the venture.
2. Determine what you are willing to risk. Many early-stage investors are comforted by knowing that the entrepreneur has and/or will make a meaningful cash investment in their own venture. Sweat equity, while appreciated, does not carry the same weight as cash in and assets pledged. Angel investors have acutely sensitive antennae that can scan the entrepreneur for any signs of reluctance or doubt.
3. Seek non-cash investors too. The entrepreneur needs a variety of champions who cumulatively lend credibility and energy to the ventures prospects. Champions share vital networks, levy unpopular but necessary criticism, provide free or discounted professional services (legal or accounting, e.g.), and stay the course in the darkest hour. Look for champions who connect to the idea and to you.
4. Family members may not be the best angels. Early on, when the risks may be the greatest, family connections may be where easy money is found. Not so fast. Easy may not be best, because easy may dull your alertness to the fact that you have actually failed to deliver a product that is compelling and that will attract others who do not share your DNA. Family may invest for the wrong reasons (guilt) and that spells trouble for most business relationships.
5. Be resilient and flexible. Angels are attracted to resilience, which means that the sooner the entrepreneur learns to deal with rejection constructively and learns from that rejection, the more interesting they become to the many hidden observers who may be intrigued by the entrepreneur’s idea, passion, and tenacity. Enduring, bouncing back, and becoming better may earn the respect of an angel who could become “the one.”
6. Choose your angels with care. Don’t accept someone’s investment until you have confidence you want them in your life. Do not ignore your intuition, because accepting an infusion of cash from a total stranger is like accepting a blood transfusion from that stranger. Discretion and early detection are vitally important. In your weakest moment, think strength and be strong. Entrepreneurs must do their own due diligence and screening in the same way that a potential angel investor must assess the merits of an investment.
7. Don’t surrender your power and authority to an angel. Individuals with money are just that: individuals with money. The angel may be relatively fresh and untested in the particular sphere of entrepreneurial initiative they are cannonballing into. They may be quite sophisticated and wiser in other realms of investment and/or life. Having money does not make them smart, competent, or sophisticated in the particular area of business you are entering.
8. Remember that angels are always out there. Even in the most challenging economic times, there are always investors looking for opportunities. The entrepreneur’s challenge is to identify new ways to network and to introduce their idea to as many people and groups as possible. The expression “one thing leads to another” applies to the entrepreneur’s reality. Even though it may be invisible, once your idea is being discussed by others, most of whom you don’t know, unexpected possibility is in play and surprising and amazing things can happen.
As you look for angel investors, remember that there are also demon investors. They are greedy, but typically hide their darkness very well. They may understand the entrepreneur’s vision, but definitely not the entrepreneur. When the illusion falls away, demons are about themselves and their insatiable appetites. Fortunately, most are averse to the earliest start-up risks, but they are out there even in the seed money stage, so beware.
Arnie Koss is coauthor, with his brother Ron Koss, of The Earth's Best Story: A Bittersweet Tale of Twin Brothers Who Sparked an Organic Revolution (Chelsea Green Publishing, March 2010), a lively business memoir that recounts the founding of America’s first nationally distributed organic foods company.