Success in raising angel capital felt like luck to me because it was so easy. Maybe there is something to the axiom that “luck is where opportunity meets preparation.” Given that, I’ll explain some of the required preparation in building your company, writing your business plan, and presenting your business opportunity to potential investors if you, too, expect to get lucky in raising angel money.
- The Right Mindset is Building Your Business. I’ve met entrepreneurs who seem to think that the whole point of business is to raise money, and they keep score by how much money they’ve raised from other people. That’s sort of like caring more about how big your mortgage is rather than how much you enjoy your home. The investors that I’ve met want you to be hungry for success in building your business and want you to understand that raising money is just a small part of the process. If you are not committed to building a business, don’t waste your time and their money. Make sure that mindset is clear in every document, presentation, and conversation you have with potential investors.
- Build a Business, Not Just an Idea. You must demonstrate that your good idea is going to result in a great business. A thick business plan with spreadsheets forecasting how great your success will be in year three is not worth as much as a couple of customers buying your product/service today. Angels want to know that someone will really buy your product/service, so include information about customer interest in your plans and presentations. I’ve seen countless hours wasted on revising business plans and PowerPoint presentations that did not address the company’s current or high-potential customers. If the same energy had gone into actually building and selling the product, the entrepreneur would have had much more luck in raising capital.
- Communicate Passion for Your Business. You should be passionate about your business and be committed to the idea that it will one day grow up and be a productive, valuable member of the community, either as a stand-alone business or as part of a larger business. This passion may show in your business plan or other documents you submit to angels but should really come out in conversations with and presentations to the investors. More importantly, the passion should come through documentation of your personal time and money into the venture. Passion is one of the unspoken, critical factors angels use in evaluating entrepreneurs and opportunities.
Get Help from Great People. Most business plans include nice organization charts showing how the entrepreneur will orchestrate one day a fantastic group of experienced people who will grow the business to unbelievable success – if only the entrepreneur can raise the capital necessary to hire those people.
Here’s a secret – you’ve got to attract the fantastic, experienced people before you try to raise money. But don’t put them on your management team. Just ask them to be on your board of advisors. You can’t afford to pay for the kind of help that is available for free from people who just want to see an entrepreneur with a proven but immature concept get off of the ground. Don’t go to them with your hand out or even with an expectation that they will someday write a check. Ask for their advice, listen to it, and if you are lucky they will help you connect to other great people. If you are really lucky, they might even write a check one day. And remember that the angel investors you are trying to attract will be looking for background on your advisory board members. Include this information in your business plan and during your presentation.
For me, preparation for pitching angels is more about thinking through how you’re going to build a significant business than it is about developing documents and presentations. But if you can’t communicate it (i.e., the pitch), then you won’t get the money.
If you believe that your business idea is so great that you will succeed, regardless of whether or not you can raise money, then you have the right mindset. If you’ve invested your own time and money to really get the business off of the ground, even a little bit, then you’ve demonstrated the passion and commitment to truly build the business. If you surround yourself with fantastic, experienced advisors who believe in what you are doing, you might just get the opportunity to fund your business and grow it to the next level. Then someday you can look back and say, “I was just lucky.”
© 2005 Ewing Marion Kauffman Foundation. All rights reserved.
Terry Gold Cofounder, CEO, and President Gold Systems